Friday, December 21, 2012

Happy Holidays!

"And the Grinch, with his Grinch-feet ice cold in the snow, stood puzzling and puzzling, how could it be so? It came without ribbons. It came without tags. It came without packages, boxes or bags. And he puzzled and puzzled 'till his puzzler was sore. Then the Grinch thought of something he hadn't before. What if Christmas, he thought, doesn't come from a store? What if Christmas, perhaps, means a little bit more?" Dr. Seuss

In celebration of the Christmas holiday, our office will be closed on Monday, December 24th and Tuesday, December 25th. Our regular office hours will resume on Wednesday, December 26th.

AND, in celebration of the New Year holiday, our office will be closed on Monday, December 31st and Tuesday, January 1st. Our regular office hours will resume on Wednesday, January 2nd.

If you have a matter that requires immediate attention when our office is closed, please contact Joe Rollins at or 404.372.2861.

We wish you and your families a holiday season filled with peace, joy and laughter!

Warm regards,
Joe Rollins

Thursday, December 20, 2012

Important Changes to Employer-Sponsored Cafeteria Plans beginning January 1, 2013

One of the benefits of working for your current employer may be that they sponsor a cafeteria plan. Benefits provided under a cafeteria plan may be funded through employer contributions, employee salary deductions, or a combination of both. Cafeteria plans are aptly named because they often allow employees to choose from a “menu” of benefit options. Among these options are health care spending accounts.

A very common health care spending account is a “health care flexible spending arrangement,” commonly referred to as a health FSA. These health FSAs have become increasingly popular because they allow an employee to reduce his or her taxable income by paying for common medical expenses with before-tax dollars. Under the current law, there is no limit on the amount an employee can elect to contribute to a health FSA through salary reductions, unless the plan itself imposes dollar restrictions. However, it is a use-or-lose account, meaning whatever you elect to contribute to your account must be used prior to the end of the year (or within 2½ months of the following year if the plan allows a grace period) or the “left-over” contributions are forfeited.

With the passage of the Health Care Act, the new health FSA limits under Internal Revenue Service code section 125(i) will cap the annual salary reduction contributions at $2,500 per employee beginning January 1, 2013. The $2,500 limit on salary reduction contributions to a health FSA applies on an employee-by-employee basis. Thus, $2,500 is the maximum salary reduction contribution each employee may make for a plan year regardless of the number of other individuals (spouse or dependents) whose medical expenses are reimbursable under the employee’s health FSA. Consistent with this rule, if each of two spouses is eligible to elect salary reduction contributions to an FSA, each spouse may elect to make salary reduction contributions for the full $2,500, even if both participate in the same health FSA sponsored by the same employer.

Also, if either your spouse or you are employed by two or more employers that are not members of the same controlled group, you may elect up to $2,500 under each employer’s health FSA. However, if you are employed by two or more employers that are considered a single employer, then your aggregate elections may not be more than the $2,500 limit. If you are unsure and you have multiple employers, we can help you determine your maximum elections under all plans.

Furthermore, although Internal Revenue Code states that all participants in a cafeteria plan must be employees, there are exceptions for persons who own more than 2% of the shares of an S corporation or who are partners in a partnership. If you fall into those categories, please call our office for guidance.

Although this limit means that the maximum amount you will be able to contribute pre-tax to your flexible spending account for medical expenses is $2,500, statistics show this amount is still higher than what most employees contribute. According to Mercer’s National Survey of Employer-Sponsored Health Plans, the average employee contribution in 2009 was $1,424. The health FSA account will still remain a use-it-or-lose-it account. That is, any unused balance for one year will not be permitted to fund your health care spending in any future year. So you will want to be cautious, as always, in determining how much you will want to contribute since this election must be made prior to the start of the year.

Your employer’s plan may still provide for a grace period of up to 2½ months after the close of the year in which you can use any remaining balance in your account. If your plan provides for this grace period, unused salary reduction contributions to a health FSA for plan year beginning in 2012 or later that are carried over into the grace period for that plan year will NOT count against the new $2,500 limit for the subsequent year.

As an example, let’s assume at 12/31/12 that your health FSA balance is $500. You incur medical expenses of $500 during February of 2013 and use up your remaining balance from 2012 because it is within the first 2½ months of the year and your employer’s plan provides a grace period. You are still entitled to contribute the full $2,500 for the 2013 calendar year. If you also use the full $2,500 by the end of 2013, you would have been reimbursed for $3,000 worth of qualified medical expenses during the year. Keep in mind, however, that you must make your current year election prior to the start of the year regardless of whether you plan to use a remaining balance during the grace period.

This $2,500 limit is expected to be indexed for inflation for plan years beginning after 2013. It is also important to understand that the statutory $2,500 limit under IRS code section 125(i) applies only to salary reduction contributions under a health FSA. It does NOT apply to certain employer non-elective contributions (i.e. flex credits), to any type of contributions or amounts available for reimbursement under any other type of FSAs, health savings accounts, or health reimbursement arrangements, or to salary reduction contributions to cafeteria plans that are used to pay an employee’s share of health coverage premiums. This means that your salary reduced pre-tax share of your employer’s health plan is not included in the $2,500 limit nor is any type of flexible spending arrangement for dependent care assistance or adoption care assistance. The flexible spending arrangement for dependent care assistance remains at $5,000 per family.

If you are an employer, you must amend your current cafeteria plan to reflect this new annual limit. Plan amendments can be made at any time through the end of 2014 as long as the plan operates in accordance with the limitation after 2012 and the amendments are effective for plan years beginning after 2012. A cafeteria plan that fails to comply with the new code section 125(i) regulations for plan years beginning on January 1, 2013 will not be considered a section 125 cafeteria plan and the value of the taxable benefits that an employee could have elected to receive under the plan during the plan year will be includable in the employee’s gross income. It is extremely important if you offer these benefits to your employees that you remain in compliance with the new regulations. Our affiliated CPA firm, Rollins & Associates, PC, can assist you in amending or establishing your employer-sponsored cafeteria plan. Rollins & Associates can have a customized plan prepared for your company for $1,000 or less.

The foregoing is based on the regulations as imposed by the Health Care Act and IRS code section 125(i). This information was taken from the Internal Revenue Service Bulletin, Notice 2012-40.

If you have any questions, please feel free to contact us at 404.892.7967 or and we will be happy to provide a complimentary assessment of your specific situation.

Best regards,
Rollins Financial, Inc.

Wednesday, December 5, 2012

November – From Terrible to Satisfactory

From the Desk of Joe Rollins

After President Obama was reelected in early November, the equity markets took a noticeable hit. Many investors perceive Obama to have little regard for satisfying the current deficit, intent on increasing taxes and being anti-business, and therefore, the equity markets sold off to the tune of an over 6% loss in just over one week. Fortunately, however, the markets rallied prior to the end of the month, closing the month essentially flat.

For the month of November, the Standard & Poor’s Index of 500 Stocks ended with a .6% gain. The NASDAQ Composite was up 1.3%, and the Dow Jones Industrial Average was down a marginal .2%. Year-to-date, the S&P is up exactly 15%, the NASDAQ is up 16.9%, and the DJIA is up 9.3%. If you recall, at the beginning of the year I expected the S&P to have a mid-double-digit gain for the year, and that expectation has now been reached. If the month of December remains steady, excellent returns will have been realized for 2012. In spite of the negative news, 2012 has been a great investment year.

Although the equity markets have been especially volatile the first two months of the 4th quarter, the S&P is down an only marginal 1.4% for the 4th quarter so far. Given the high volatility, you might expect for the loss in equity markets to have been greater.

Historically, December through May of the following year are the best months for the equity markets; this is not a coincidence. Many corporations – and individuals, to a lesser degree – fund their retirement plans during these months. Corporations are obligated to fund their pension plans, 401(k) plans, and matching contributions during the month of December through the first quarter of the following year. Traditionally, this has allowed the equity markets to float up during this period. The term ’Santa Clause Rally’ has been used by Wall Street almost since the beginning of time, and it’s not at all based on Christmas sales. Rather, it’s based on corporate funding of retirement accounts at year-end.

While it makes some sense to review prior year trends when making stock market projections, at Rollins Financial we believe projections should be based on more than just theory. As I have explained in prior posts, the best projections come from analyzing corporate profits. Therefore, the current fiscal cliff fixation is relatively immaterial to long-term investing. Going over the cliff could certainly create hefty, short-term swings, but in the end, it is not likely to have much of an overall negative long-term effect.

Unfortunately, the bozos in Washington can’t seem to focus on reality. Neither side is currently making a valid attempt to negotiate the issues. I find it unbelievable that the President’s answer to solving the country’s deficits is to dramatically increase taxes and increase spending, moves that have proven in the past to only increase deficits. And while Republicans have conceded to some tax increases, they are also too fixated on not increasing marginal tax rates which must be negotiated if they are committed to getting something done.

History documents that higher tax rates do not lead to higher revenue for the government, but it doesn’t appear to me that President Obama has read any of those reports. For example, in fiscal 2010-2011, Britain instituted a 50% income tax rate on millionaires (the previous rate was 40%) causing the number of taxpayers declaring income of £1 million for the year to fall more than 60% from the prior year.

Britain’s goal in this 10% increase was to raise an additional £2.5 billion in revenue. But at the 50% rate, Her Majesty’s Revenue and Customs yielded £6.5 billion from millionaires whereas in 2009-2010, British millionaires paid £13.4 billion in taxes. Even though results such as these are well-documented, we continue hearing remarks like, "We're going to have to see the rates on the top two percent go up and we're not going to be able to get a deal without it," from President Obama.

President Obama seems totally unable to deal with the U.S.’s long-term fiscal issues, but neither side is proposing anything that resembles a meaningful plan to solve the huge and growing deficit. Perhaps we would all be better off going over the cliff. If that happens, at least there is a plan in place to solve the deficit problem. However, you can call me Pollyanna, but I still believe that some compromise will be reached despite the gross incompetence in Washington.

We have prepared a few charts and supporting exhibits that will hopefully leave you feeling a little more optimistic about the markets and the economy. The chart below reflects that the performance of the stock market closely follows the performance of corporate earnings.

As the chart above indicates, stock prices increase as corporate earnings rise. The reality is that for most of the 2000 years, the S&P 500 was selling at greater than corporate earnings. In recent years, corporate earnings have increased dramatically higher than the stock indexes even with the reality of lower interest rates. We believe this bodes well for higher stock prices in the future. See Exhibit 1 for more details.

Historically, the average price/earnings multiple for the market is about 15 times earnings. The reasonable price for the S&P 500 is currently 14 times 2012 earnings estimates of approximately $102, which means that it is slightly undervalued at the present time.

However, there are many reasons that the current P/E multiple may be low. Given the current low interest rate environment of practically zero, arguably, the market could easily sell at a much higher multiple than the historic rate of 15. Additionally, over the last several years, there has clearly been a recession in Europe and a slowdown in Asia. Many argue that corporate earnings of the 500 largest U.S. corporations could explode to the upside if Europe solves its problems and Asia begins accelerating again. See Exhibit 2 for more details.

The unemployment chart below further illustrates my foregoing point. Unemployment has not improved dramatically, but it is gradually improving. Again, while job growth is still lackluster and unemployment is way too high, the chart does demonstrate how corporate earnings could be positively impacted if unemployment dropped to a more normal level. With more people working, corporate earnings will be higher. See Exhibit 3 for more details.

The chart below reveals that housing has finally turned the corner. The recovery has not been an upward explosion, but even a minor improvement in housing has a major positive economic impact. So many people are employed, directly or indirectly, in the housing market. While we all consider contractors to be dependent upon the housing market, there are also many suppliers who are dependent upon the housing market. Many industries sell to the housing industry that will be positively affected in the way of earnings if housing recovers to the pre-boom years. See Exhibit 4 for more details.

Corporate bonds in November were basically flat while high-yield bonds and foreign bonds had gains almost equal to the S&P 500. Undoubtedly, we are in an interesting time. Under normal circumstances, we would expect interest rates to begin accelerating upward as the economy improves. However, the Federal Reserve has essentially guaranteed that short-term rates will not increase before 2015. Never in the history of American finance has the Fed provided such guarantees. Therefore, even though it’s intuitive and reasonable to believe that bonds would suffer major losses in 2013 due to this artificial restraint of interest rates, it’s unlikely that we’ll see an increase in overall interest rates paid by corporations. This low interest rate environment and moderate increase in inflation is positive for corporate earnings, and therefore, also bodes well for higher stock prices. See Exhibit 5 for more details.

The final exhibit reflects some of the political developments presently at hand. These are short-term issues we are facing, and none of us can know exactly how this political ping pong match will end. Regardless of the outcome, my argument from an investment standpoint is that we are better off investing using the information we have at hand rather than attempting to invest based on uncertainties. See Exhibit 6 for more details.

I wanted to provide you with real information rather than hyperbole. Rather than attempt to evaluate the investment environment in the future, we want to provide you with facts that should provide a level of comfort that the market is not in for a major downturn for the long-term. In fact, we anticipate that the market could gradually move higher over the next 13 months. Moreover, I expect returns for 2013 to be approximately 10%, or an amount five times the current rate of inflation – but with high volatility along the way. With mid-double-digit returns in 2012 and double-digit returns in 2013, we should have nice two-year returns, building wealth for our clients.

If you aim to build true wealth for your retirement years, no other investment vehicle offers you the potential for gains going forward than the equity markets. I am often stunned by an investor’s apprehension to invest early in a year. If you want to maximize your IRA returns, the very best time to invest is in January of each calendar year.

As always, we welcome the opportunity to meet with you and discuss your financial goals and strategies. If we do not see you during the holidays, we certainly wish you a happy and healthy season.

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

Best regards,
Joe Rollins

Wednesday, November 21, 2012

Happy Thanksgiving!

Dear Readers,

Although Thanksgiving gives us the opportunity to be gluttonous, its true meaning is simple: to give thanks for what life has given us and the fortunes bestowed upon us.  It is a uniquely American holiday, where in 1621, the Plymouth colonists shared an autumn harvest feast with the Wampanoag Indians that is acknowledged today as the first Thanksgiving celebration.

For more than 200 years, days of thanksgiving were celebrated by individual colonies and states, but in 1863 -- in the heart of the Civil War -- President Abraham Lincoln proclaimed a national Thanksgiving Day to be held each November. 

All of us at Rollins Financial hope your Thanksgiving is filled with happy moments, simple pleasures, and grateful hearts.  We are very thankful for you.

Warm regards,
The Staff of Rollins Financial

Please note that our office will be closed on Thursday, November 22nd and Friday, November 23rd. Our regular office hours will resume on Monday, November 26th.

If you have a matter that requires immediate attention, please contact Joe Rollins at or 404.372.2861.

Tuesday, October 23, 2012


From the Desk of Joe Rollins

This past Friday was the 25th anniversary of the worldwide stock markets crash of 1987, often referred to as “Black Monday.” In that single day, the Dow Jones Industrial Average lost 22.61%, its greatest one-day percentage decline. Obviously, there was widespread investor panic and fear, with many economists collectively speculating that “the next few years could be the most troubled since the 1930s.” In fact, it only took two years to recover this loss, and 1987 actually ended with a small gain.

In many regards, Black Monday is the event that most encouraged me to begin Rollins Financial in 1990. I vividly recall receiving telephone calls from panicked tax clients that day (those were the days before communicating by email, texts, Facebook or Twitter). One client in particular expressed utter fear because the market was already down over 300 points at the time we were speaking and he saw no end in sight. I reassured him that if it was down that much, it surely couldn’t go down much more. I was wrong – the Dow declined another 208 points by the day’s end.

After Black Monday, I committed myself to learning more about stock market investing and understanding market moves. I also wanted to better understand the stock exchanges’ relatively new utilization of program trading applications. Back then, computers were believed to be smarter than people since they react non-emotionally to the movements of individual stocks. By the end of 1989, I felt comfortable that I could be a successful asset manager, and Rollins Financial opened its doors inside Rollins & Associates’ office suite on January 1, 1990. As our 23rd year in business draws near, my voracious appetite to learn something new each day continues, and in the ever-evolving world of finance, an asset manager can never know enough.

To this day, many people believe that the stock market crash of 1987 was a result of “computers gone wild!” Program traders basically have specific and defined levels in which trades can be automatically initiated to take advantage of rapid market movements. Until Black Monday, very few people anticipated that a crash of this magnitude could occur over a single day. In fact, the Dow had reached a high of 2,722 points in August of 1987 – a 44% increase over 1986’s 1,895 point closing – and had been selling off precipitously in the six weeks preceding the crash.

On October 19th, the market started selling off rapidly right at the opening bell. It’s believed that program traders broke through initial support levels and the programs instantly sold without regard to liquidity or any other intuitive measure that humans would have exercised. Suddenly, the programs were dumping stocks into an illiquid market with no buyers. At the end of the day, the DJIA’s 22.61% loss was the smallest of the losses in the developed markets. Hong Kong’s losses had fallen 45.5% by the end of October, Australia 41.8%, Spain 31%, The United Kingdom 26.45%, and Canada 22.5%. New Zealand was especially devastated, falling almost 60% from its 1987 peak. Looking back, it would be hard to classify Black Monday as anything short of a financial disaster.

The reason I am reminding you of the devastating events of Black Monday is not to dredge up bad memories for those who lost money in the crash. Rather, I want to illustrate an important, basic investing philosophy that will hopefully be informative to you. Not a week goes by that I don’t receive a call from a client wanting to know why we don’t sell our investments for any given reason (e.g., the election, oil prices, inflation, oil strife, blah, blah, blah…). Many na├»ve investors believe that it’s wise to sell stocks when these concerns are present and buy them back when the market is lower, but numerous studies have disproven this investing strategy. The following example illustrates this fact:

Assume that on Friday, October 16th, you had been unlucky enough to invest 100% of your capital in the stock market. The DJIA closed at 2,246.74 that day, and by the closing bell on Black Monday, had declined further to 1,738.74 points. Even though 22.61% of your capital had gone to “stock market heaven,” you did nothing and let your investments ride. Today, the DJIA trades at 13,344, which means that over the intervening 25 years, the money that you had invested would have made 7.38% annually, not including reinvested dividends. If you include reinvested dividends, you would have made 9.98% annually.

To further illustrate my point, if you had invested $100,000 on Friday, October 16th and did not touch it in the following years, that investment would be worth approximately $1,078,000 today – a nearly 1,000% gain! At a rate of 9.98% annualized, you would have earned a rate of return in excess of five times the rate of inflation over the intervening 25 years.

Even more extraordinary is that over the last decade, there have been numerous market sell-offs, including the terrible stock market of 1990 and 1991. Additionally, who could forget the tech bubble burst of 2000 and the 35% loss the stock market suffered in the financial meltdown of 2008? Even with these major swings, you would have earned nearly 1,000%.

Furthermore, if you had invested your $100,000 before the crash and you had added an additional $1,000 each month thereafter over the subsequent 25 years, then as of today, you would have invested a principal total of $400,000 ($100,000 plus $300,000 invested on a monthly basis). Including earnings, your account would be worth an approximate whopping $2.5 million today! This approximation is based on average gains and not actual year-to-year gains.

There is no stronger argument for long-term investing than the foregoing examples. Clearly, the potential for creating wealth through stock market investing should not be disregarded. Hardly any other investment class comes close to this potential. So, the next time you wake up in a cold sweat in the middle of the night and think you have a good reason for selling to cash instead of remaining invested, I hope you will think about the examples above. Concisely, market timing is a failed investment strategy for investors seeking long-term wealth.

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

Best regards,
Joe Rollins

Monday, October 8, 2012


From the Desk of Joe Rollins

Historically, September is the worst month for stock market performance in any investing year. After considering the historical data, I forecasted the month of September to be flat or even negative from a performance standpoint. Fortunately, however, I was wrong! September was an excellent investment month, adding to what has been an excellent investment year thus far.

For the month of September, the S&P Index of 500 Stocks increased 2.6% while the NASDAQ Composite gained 1.7% and the Dow Jones Industrial Average gained 2.8%. This performance is quite impressive for a month that has historically had negative performance.

Not only was September an excellent investing month, the entire quarter was also exceptional. For the quarter, the S&P 500 was up 6.3%, the NASDAQ was up 6.5%, and the DJIA was up 6.1%. Clearly, the 3rd quarter of 2012 will be remembered as a remarkable financial quarter. Performance like this makes me even more amazed at the number of investors who are earning next to nothing by sitting in cash.

Even though there is a great deal of negativism regarding the U.S. economy, the U.S. and the international growth prospects have provided a great investment year thus far. The S&P 500, through the end of September, is up 16.4%; the NASDAQ is up 20.7%, and; the DJIA is up 12.3%. I previously projected that 2012 would have returns for the entire year in the middle double-digits, and so far, that prediction is on-target.

I am baffled that so many investors have entirely missed out on this rally. Since the market low of March 2009, the broad market is up 120%. It’s hard to believe that with all the turmoil and negative press, the DJIA is now only 4% below its all-time high reached in 2007. The S&P 500 remains 6% below its all-time high, and is threatening to reach that high level in the coming months. And yet, there are many investors who have completely and totally missed this opportunity to increase their wealth.

Since 2008, when the broad market was down almost 40%, almost a half-trillion of investment dollars have been withdrawn from equity funds, net of money added to equity funds. The public is clearly running away from equity investing, even as equities continue climbing higher. All too often, individual investors completely miss the big picture by exiting the market when times are bad and then fail to reinvest when times are good.

Oddly, many investors refuse to invest in the market when stocks are cheap and “on sale.” People flock to retail stores to get small discounts on goods, but when it comes to the stock market, investors tend to run in the other direction. When stocks are cheap, few people invest. But when stocks get expensive, everyone wants a piece of the pie. And that is exactly why the average investor needs professional advice when it comes to investing for their retirement years.

A recent Franklin Templeton Mutual Funds study pointed out how completely wrong the public is about investing. They asked a group of 1,000 investors about their perception of the stock market’s recent performance. Stunningly, more than 50% believed that the market was down in 2009, 2010 and 2011. Even more baffling, those polled were bona fide investors who were thought to have a handle on market performance. For the record, the S&P 500 was up 26.5% in 2009, 15.1% in 2010, and 2.1% in 2011. And, again, it is up 16.4% through September 30, 2012. Evidently, even investor perception of the stock market often contradicts the truth.

To test whether or not you’ve been keeping up with the market over the last year, can you guess the performance of the three major market indices for the 12-months ended September 30, 2012? Perhaps you guessed that these indices are up 5%, 10%, or 15%. All of these would be excellent returns, but the correct percentages are even more impressive. For the 12-months ended September 30, 2012, the S&P 500 is up 30.2%, the NASDAQ is up 30.6%, and the DJIA is up 26.1%. All three major market indices have been in positive territory for the last five years – even when you include 2008’s awful sell-off. How many of you guessed that the returns are in the 25% to 30% range?

Hardly a day goes by that I’m not asked for my opinion on what might happen in the stock market if President Obama is reelected. Public sentiment is that the market will adversely react if that’s what happens. Many also believe that if President Obama is reelected, the public debt will skyrocket another $5 trillion, that the country will be saddled with over $20 trillion in long-term debt, and that our national debt (other than during wartime) would exceed the U.S. GDP for the first time in history.

I’ve often said in my posts that the stock market is “forward-looking,” and that you can’t invest by looking in the rearview mirror. The polls now forecast that President Obama will be reelected by a few percentage points, and the general presumption is that if that happens, the Republicans would at least retain control of the House and could gain control of the Senate. If this election yields another deadlock, then that would actually be favorable to investors.

Since the stock market is forward-looking, you may rest assured that investors have already measured any effect that they believe President Obama’s potential reelection would have on the markets. Since the polls favor Obama’s reelection, investors have already traded to accommodate that result. On the other hand, if Romney is elected, the market could possibly move higher since many perceive him to be more business-friendly than Obama.

Some of the best years investors ever enjoyed occurred when Washington was in political gridlock. Aside from our military, the government does almost everything poorly (e.g., the U.S. Postal Service, Social Security, and of course, Medicare). To be sure, it’s almost impossible for any president to simply turn the government battleship of gross negligence and its inability to function around overnight.

There are incredible worries for investors to confront. Unquestionably, tax rates will increase regardless of who gets elected. Beginning in January 2013, payroll taxes will increase for almost all working Americans. Additionally, a maze of new taxes instituted under Obamacare will become effective. If Congress doesn’t deal with the fiscal cliff of expanding taxes at the end of 2012, the increased tax load would almost assuredly throw the country into a recession in 2013.

The economy continues to rock along at 1% GDP, plus or minus. While there have been some signs that the economy might slip into recession during 2013, there have also been positive signs to the contrary. For instance, car sales have been excellent. Even though these sales are led by foreign automobile manufacturers, the cars are actually being built in the United States by Americans, which is very positive. With the slowing of the European economy and a pronounced slowdown in China, however, it is perfectly possible that the very fragile U.S. economy could dip into negative territory. Nonetheless, I anticipate that we will see the economy continue on its positive path, even if at a very low level. I wouldn’t be surprised to see GDP below 2% for the rest of 2012, and for at least the first half of 2013.

All politicians talk about taxes – seemingly, President Obama wants to increase taxes on almost everything, and Mitt Romney speaks ad nauseam on his plans to decrease taxes. However, neither the incumbent nor his opponent has actually discussed spending cuts. If the federal government would cut spending, perhaps making changes to tax law would be moot.

There’s been an explosion of spending at the federal level since President Obama took office, and there’s been a corresponding explosion in deficits. However, Obama’s only solution seems to be higher taxes on the rich, but I can’t think of a single study indicating that this would make even a dent on the current deficit’s size.

Investors also have to worry about Europe’s debt crisis. However, during the 3rd quarter, Europe has finally taken positive steps to deal with their economies. Unlike the United States, Europe is making positive austerity strides and their economies are slowly improving. They are attempting to reduce their social programs and deal with their fiscal issues. Unlike the U.S., they are at least trying to confront the issues.

Unfortunately, the French Socialist mentality believes higher taxes are the answer to every issue. Have you heard that before?!? For example, France’s Socialist president Francois Hollande recently announced his plan for a 75% tax rate on individual incomes over €1 million. Hollande defended the new “supertax” as a component of his effort to reduce France’s deficit, but he says it’s also “symbolic,” and that he hopes “It will show an example.” It certainly wouldn’t be unusual to see an exile of those in the supertax bracket from France. According to French real estate brokers specializing in high-end properties, a glut of Paris residences worth more than one million euros ($1.3 million) were recently listed on the market. While Hollande’s supertax has generated the most headlines, it’s apparently the drastic increase in the capital gains tax rate (62.21%) that’s pushing most people to leave.

How could politicians have such a narrow perspective on how tax rates affect a citizen’s desire to stay in a country? To be sure, George Harrison wrote “Taxman” when he realized how much money the Beatles were paying in taxes to the U.K. As a result, the Beatles (along with the Rolling Stones and The Who) spent a lot of time in America and other parts of Europe as tax exiles.

While there are many issues to be dealt with – and clearly the economy is slowing to an almost break-even level – there is room for optimism. For instance, there’s an absolute explosion happening in U.S. manufacturing productivity right now. Due to the advent of new technology, productivity has allowed companies to produce at remarkable levels without adding employees. That’s not exactly great for workers, but it is good for the U.S.

Contrary to popular opinion and what you may read in the press, the U.S. economy is the number one manufacturer in the world. We are even bigger manufacturers than China, which has four times as many people than the United States. Additionally, manufacturing companies from all over the world are coming to the U.S. to build due to our excellent skilled workers and higher productivity.

Despite the Obama Administration’s desire to halt fossil fuel exploration, there’s been an explosion of oil and gas production in the U.S. Advanced technology is providing the ability to extract oil and gas from land that was once thought to be unattainable. Even though the current administration has fought attempts to expand fossil fuel exploration, it has occurred on private land to levels never deemed possible. My hope is that public land is eventually opened up for production of oil and gas, which would make North America more energy independent.

The United States couldn’t possibly become energy independent on its own in the next few decades, but if our oil production is combined with Canada and Mexico’s production, North America as a whole could become energy independent in the next decade. By opening up government land to drilling, energy independence could be achieved.

I still believe that the best investment months are forthcoming. It’s perfectly possible for the market to continue moving upward notwithstanding the presidential election due to high earnings and extraordinarily low interest rates. That’s not to say the market will never be volatile again – we know that’s not a possibility. However, the potential for middle double-digit gains this year has already been realized and may even be improved upon in the 4th quarter. Even if the year ended with the market exactly where it is now, it would be a great investment year.

The possibility of reaching all-time highs in the major market indices is within reach over the next six months. I continue to be baffled by those who continue to invest in cash even after missing out on this 120% run-up. If we can assist you in understanding the market and gaining a better understanding of how to increase your potential for a more secure retirement, please give us a call.

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

Best regards,
Joe Rollins

Thursday, September 20, 2012


We’re delighted to announce that our very own long-term employees, Danielle Van Lear and Robby Schultz, were married on Sunday, September 2nd. The ceremony was performed at the beautiful Ritz-Carlton Resort on Amelia Island in Florida in the presence of their family and friends.

Danielle will continue to use her name professionally. She has worked for Rollins & Associates, our affiliated CPA firm, since 2004, currently leading the tax department. Danielle graduated from the University of North Carolina and received her master’s degree in finance from Georgia State University. She obtained her CPA license in 2011.

Danielle is a daughter of Susan and Murray Van Lear who now reside in Atlanta after retiring from their careers in Fredericksburg, Virginia.

Robby is a Partner and Financial Adviser at Rollins Financial, and he has worked for the firm for over 14 years. Robby graduated from the University of West Georgia and also received a master’s degree in public administration from the University of West Georgia.

Robby is a son of Sam and Bob Schultz of Dallas, Texas.

After their exciting wedding weekend, Danielle and Robby spent two weeks relaxing in the Caribbean. They returned to the office on September 17th, pledging to carpool together as often as possible.

Danielle and Robby will reside in the Old Fourth Ward neighborhood just east of Downtown Atlanta.

Here’s to the happy couple! We wish them the very best for a wonderful life together.

Monday, August 27, 2012

The CFA Institute Welcomes Edward (Eddie) Wilcox as a New Charterholder

We proudly announce that Eddie Wilcox, Partner and Financial Adviser at Rollins Financial, has successfully completed the prestigious Chartered Financial Analyst® Program and has been accepted by the CFA Institute as a new charterholder. The CFA designation was introduced in 1963, and it has since become one of the most respected and recognized investment credentials in the world for its rigorous focus on current investment knowledge, practical analytical skills, and performing in the client’s best interest.

When Eddie decided to earn his CFA designation, he embarked on a graduate-level study program that combines a comprehensive curriculum with stringent professional conduct requirements. The program concludes once candidates pass three consecutive and increasingly difficult exams that are widely considered to be among the most intensive in the investing profession. Only around one in five candidates who enroll in the CFA Program pass all three exams and meet the professional and ethical requirements to earn the charter. Earning the designation demonstrates Eddie's mastery of the skills most needed for investment analysis and decision making in today's fast-evolving global financial industry.

"Earning the CFA charterholder has been challenging but rewarding. I believe the knowledge I've gained will be an invaluable supplement to my financial work experience as it has provided me with a strong foundation from which to draw when analyzing investments and managing portfolios," explained Eddie.

Eddie has worked for Rollins Financial for over 10 years, joining the firm as a client specialist and asset manager, and becoming a partner in 2007. His primary responsibilities are designing and modeling complex investment strategies and coordinating their successful implementation with other members of the investment advisory group. Eddie is also Rollins Financial’s chief compliance officer, and as such, he is responsible for ensuring that we are in compliance with regulatory and legal obligations.

Since completing the CFA program, Eddie has been enjoying spending some quality time with his family again. Eddie’s wife, Jennifer, also works at Rollins, and she is especially proud of his accomplishment. After all of his hard work, she’s quite happy to see Eddie chasing their very active daughters around instead of his nose being buried in textbooks all the time.

Congratulations, Eddie! We’re so glad you’re on our team.

CFA® and Chartered Financial Analyst® are registered trademarks owned by the CFA Institute.

Tuesday, August 14, 2012


From the Desk of Joe Rollins
We’re not even halfway through August, but the end of summer looms near. When I was in high school, the thought of summertime coming to a close brought with it the dread of returning to school. In my case, I also knew that the start of two-a-day football drills in the tremendous summer heat was just around the corner. Even so, my school year didn’t start until after Labor Day, but children in my present neighborhood returned to school last Monday, on August 6th. I’m sure most kids will agree that the end of summer comes way too soon.

Much like those summertime months before school begins, the month of August is typically slow for the stock markets since so many traders are vacationing and are generally unconcerned with trading or their everyday job responsibilities. Many argue that September is the worst month of the year for the stock markets. This isn’t for any particularly good reason; it’s just that the traders return to work after Labor Day and tend to emphasize the negatives of the capital markets by their activities on the short side of the market. While August is never a particularly good month, however, September has always been considered the worst month in the trading year. But I think that has changed in recent years for the better.

In prior years, traders had to actually be present on the New York Stock Exchange floors to make decisions, but due to technology, that isn’t a requirement anymore. Vast amounts of stocks can be traded from a cell phone from virtually anywhere in the world these days. Moreover, in the past, much of the information we gained on the financial markets was through reading the morning edition of the Wall Street Journal. However, by the time we receive the morning paper, that news is as old as the phonograph. Financial news can now be obtained in real time, 24 hours a day seven days a week. Things just aren’t the same as they were years ago – I simply don’t believe that there are many traders left who pack up their bags at the beginning of August and completely ignore the market until after Labor Day.

It’s been approximately six weeks since the second quarter ended, and the financial markets continue moving up slowly but surely. The major media rarely reports that the stock market for 2012 has been as good as it’s actually been so far this year. Through August 10th, the Standard & Poor’s Index of 500 Stocks is up 13.2% for 2012, which would be an excellent return even at year end.

Since June 30, 2012, the S&P is up 3.7% in the intervening six weeks, and even though the increase has been gradual and on relatively low and unexciting volume of stocks being traded, it continues to be quite positive and in an upward trend. I still hold my projection of net double-digit increases for the entire year, and we are almost there today. None of this could be deemed to be anything but positive for building your wealth and making your retirement years more secure.

Not much has changed in the economic world since my last post. Corporate earnings continue to be excellent and trending upward – up more than 5% over the last quarter. There certainly has been some moderation of exuberance, but even though sales were not as high as projected in the second quarter by major U.S. corporations, net income was even higher. As I have often written, net income is the most important component to higher stock prices. With net income setting quarterly records for high levels, that is certainly very positive for future stock prices.

The economy is clearly positive and gradually growing, although no one should have any illusions that we will wake up tomorrow with GDP skyrocketing. We are currently facing a very slow and gradual increase which is somewhat frustrating, although not a negative. With the government stimulus being injected into the system, more should be expected (although it doesn’t appear to be forthcoming).

Only a few months ago, several commentators in the financial press were proclaiming that the U.S. had fallen into a recession. One economist even guaranteed during a television report that the U.S. was in a recession. It’s amazing how quickly opinions change. Very few of those same commentators are now proclaiming that we’re in a recession, and if you’ll review my posts over the last several years, I’ve never opined that the U.S. was in a recession. I don’t know why some commentators take such an extreme position when the evidence is clearly contrary to their proclamations. Perhaps the truth isn’t as interesting as the myth they are trying to perpetuate.

There have been gradual and positive signs of life in the real estate markets. Where I reside in Atlanta, there’s actually a shortage of homes for sale. And throughout resort areas, there are massive inflows of capital from foreign countries to buy real estate for cash. Even though these houses are selling for less than they sold for a few years ago, at least they are finally selling. Given the low inventory for new houses and the ending of the foreclosure cycle, I believe we will see new home construction start picking up again. This is a positive that will impact the economy in many ways.

I’ve suggested many times that now is the right time to look into refinancing your principal mortgage. Thirty-year conventional home mortgages are presently in the 3.75% range and 15-year mortgages are in the 2.8% range. If you haven’t looked into refinancing your mortgage recently, it’s highly unlikely long-term rates will ever be this low again. There are many programs available to help underwater homeowners. (Please see our Smart Refinancing Strategy post.) If you sit by idly and don’t attempt to refinance your mortgage, you may be giving up the opportunity of a lifetime for these low rates.

It wouldn’t surprise me to see the market moderate over the next six weeks as the upward move we’ve enjoyed has caught a lot of the professional money managers on the blind side. I would expect the market to move sideways or marginally down for the next six weeks or so before the last burst of buying that occurs at the end of most tax years. We should expect to see the final quarter of the year have a moderate increase, much like what we experienced in 2011, and at the end, double-digit gains are still certainly possible.

On the election front, Mitt Romney announced his vice-presidential running mate on Saturday, Wisconsin congressman Paul Ryan. I have kept my eye on Congressman Ryan for many years, and have admired his thoughtful views on the economy and the federal budget. In my opinion, Romney has finally chosen someone who is capable of discussing the budget and fiscal responsibility on Capitol Hill. Our country faces no more serious threat to our future than federal budget deficits, and if the Romney/Ryan ticket wins, we’ll finally have leaders in office who understand it.

Perhaps this presidential election will move away from the silly, demeaning arguments regarding personalities (or lack thereof) and focus instead on subjects that are most important to Americans – fiscal responsibility and the economy. The voter’s choice this November is either for bigger government, more regulations and higher taxes or smaller government, less regulations and lower taxes. I don’t think the choice could be clearer.

Paul Ryan developed a balanced budget approved by the House, and now there is a candidate who has talked the talk and walked the walk. In contrast, the U.S. Senate has not approved a budget in the last three years. The upcoming discussion over the next 90 days of this election cycle is going to be extraordinarily informative. In the last four years, $5 trillion of debt was created. It is absolutely clear that Medicare and the federal deficits are unsustainable. Do you want bigger or smaller government? This November, the majority of Americans will get to decide.

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

Best regards,
Joe Rollins

Tuesday, July 3, 2012


From the Desk of Joe Rollins

Speaking from experience, you can tell you’re getting old when the cashier at the grocery store gives you a senior citizen’s discount without even asking for it. This happened to me for the first time two weeks ago, when I made an emergency run to the store to get Ava some diapers (of all things). With one child heading to college in just a year and another with 17 years to go before she starts college, I’ll take all the senior citizen discounts I can get to invest in their college funds…

The first six months of 2012 ended in a fever pitch on Friday, with stocks posting their biggest daily gains for the year. If this keeps up, my prediction that 2012 will have returns in the mid double-digits will come to fruition. If the year ends as I anticipate, then the rate of return on your investments for the year may be six to seven times the rate of inflation given that inflation is currently bordering on 2%.

The 2nd quarter of 2012 saw the markets retreat a bit, but they’re still posting above average returns so far for the year. Even after losing 2.8% for the quarter, the Standard & Poor’s Index of 500 Stocks is up an excellent 9.5% for the year; the Dow Jones Industrial Average is up 6.9%, although it lost 1.8% for the quarter, and; the NASDAQ Composite is up 13.3% for the year with losses of 4.8% for the quarter. Furthermore, even with the market’s terrible performance in April and May, the first six months of 2012 have actually provided rather nice returns.

As I pointed out in my “Blame it on the Greeks – AGAIN” post, I still believe that the European leaders will be able to come together to solve their issues in spite of the barrage of negative news we’re receiving concerning the euro-zone. Most countries are realizing that they simply cannot continue with high taxes and social welfare programs without disastrous results. And while we also have the never-ending circus of uncompromising Republicans and Democrats in Congress, I actually think this works to our benefit. The less our government gets involved in the private sector, the better we will all be.

As for the U.S.’s dawdling employment rate, the real reason employment lags is because of the bureaucracy in Washington. Tax rates are scheduled to increase on December 31, 2012, and the implications will be enormous if no compromise is reached. Both sides of the political aisle have refused to meet in the middle on anything, and therefore, nothing is happening. If a compromise is not reached on the tax laws that are set to expire at December 31st, then tax rates for almost every segment of the population will increase. I don’t think this will happen, but I can’t help but be concerned that the politicians will once again fail to compromise. Regardless, it’s safe to say that whether or not the tax breaks are extended or compromises are reached, tax rates in 2013 and later years will almost assuredly increase.

The negative sentiment these days regarding the financial markets is depressing. I hear almost daily opinions that the stock market is crooked and not worthy of a client investing his or her money. Given the very poor alternatives for investing, though, I wonder how these people intend to live once they retire. With interest rates paying next to nothing, these people will have a hard time building sufficient retirement assets.

An overview of the last 10 investment years should give you some perspective on how financial markets correct over time. The 10-year period ended June 30, 2012 includes some extraordinarily bad years. In fact, the S&P 500 had a record loss in 2008 of 37% and a loss in 2002 of 22%. However, the 10-year rate of return on these indices still continues to be a high multiple of the rate of inflation.

The Dow has averaged a 6% rate of return over the last decade; the S&P 500 has averaged 5.3%, and; the NASDAQ has averaged 8.1%. In each case, this is two to three times the rate of inflation during the same time period. Compounded interest can best be illustrated by an investment of $10,000 on July 1, 2002 in the DJIA that hasn’t been touched during the intervening decade. Today, that $10,000 investment would be worth $17,908 – almost double!

In comparison, the 10-year Treasury bond for the next 10 years pays 1.6%. As already mentioned, the inflation rate currently borders on 2%. Therefore, if you invest in the “safety” of a 10-year Treasury bond, then you will almost assuredly lose purchasing power over the next decade.

While the indices had admirable returns over the last decade, the actively managed mutual funds have performed better by a few percentage points. Even with the disastrous sell-off of 2008, actively managed mutual funds have outperformed the rate of inflation by at least a multiple of four. Things definitely are not all gloom and doom in the financial markets arena.

I had a conversation with a client the other day who could not get the financial calamity of 2008 out of her mind. The fear of it happening again was paralyzing her – the mere thought of reinvesting her cash (even though it was generating nearly a zero rate of return) was turning her into an insomniac. I conceded that the S&P 500 was down 37% in 2008, but pointed out that since March of 2009, the markets have been up over 100%.

Even with 2008’s massive losses, if she had invested only in the DJIA stocks for the last decade, she would have generated a 6% return per year. Even with these overwhelmingly positive facts, however, I couldn’t persuade her to reinvest her cash. It’s worrisome when investors heed the advice of the uninformed and make rigid, poor decisions regarding their financial futures.

I particularly worry about young people today. With 30 to 40 years left before retirement, young people with only modest amounts to invest should be accumulating significant financial assets. Unfortunately, so many of them aren’t investing a dime. The same applies to middle-age people, who are often not investing enough for their retirement years. Many people were so blinded by the losses that occurred during 2007 and 2008 that they’ll never trust equity investing again. This is an enormous mistake, in my opinion.

In truth, the fundamentals for investing in the U.S. stock market continue to be excellent. The reservations being expressed that Europeans will adopt austerity measures that will make U.S. corporations less profitable are unfounded. There is no evidence that Europeans will spend less money on the basic commodities that they have always needed just because the government is cutting back.

Furthermore, corporate profits for this quarter should be superb, and should once again hit all-time highs. The cost of gasoline is down dramatically, inflation is under control, and other than employment, the economy is moving forward nicely. While all of us would like a higher GDP growth, the fact that it is still growing at a 2% clip is encouraging.

I’ve been asked several times over the last week for my opinion regarding the Supreme Court’s ruling to uphold Obamacare. I actually believe the 5-4 decision was well thought-out and written by Chief Justice John Roberts, and it certainly argues for whether or not you want a bigger or smaller government. In November, voting one way will vote for Obamacare, and voting the other way will vote against it. In my opinion, an entitlement program that will tax citizens and burden our economy should be decided by the people and not the courts, and I believe that’s what Roberts intended in the decision. The Court ruled that the law couldn’t be upheld under the Constitution’s Commerce Clause, but that the law could be considered a tax, and therefore, was constitutional under Congress’s taxation power.

At any rate, it’s now possible for voters to express their opinions and vote the law up or down in the November elections. What could be more democratic and positive for our country other than letting the majority decide?

It’s also clear that Washington will do nothing to boost the economy – they are clueless on how to stimulate the economy, and their unwillingness to compromise isn’t helping matters. The president’s idea was to hire more teachers, policemen and firemen. But the problem with that strategy is that these are all public sector jobs, and therefore, they are created through taxes. As a taxpayer, I take great offense in paying Federal taxes to fund school districts, fire departments and police departments nationwide. That’s not to say that funding those departments is unnecessary – I just believe they should be local functions, not federal.

The answer to our economic woes lies in the private sector. If it’s stimulated and allowed to function on its own, GDP will pick up. But if it’s taxed and overregulated, then it will continue to creep along. Note, however, that under either scenario, the economy will continue to grow and wealth will continue to be created through equity investing. From a financial standpoint, the first half of 2012 was admirable. The second half of 2012 is not likely to go straight up, but the results for the year as a whole should still be very good.

I wish I could talk more people into investing on a consistent and regular basis. There are so many benefits to the dollar cost averaging investment strategy that it’s hard to argue against it, but so few investors take advantage of it. I see a relatively small percentage of people’s salaries invested in 401(k) plans, and almost no one makes non-deductible IRA contributions. When the day comes for them to retire, however, I believe those individuals will be very sorry they didn’t invest more regularly.

As the hot months of summer continue, we again invite you to meet with us to discuss your financial goals. Please keep in mind that our expertise stretches beyond investing. We can assist you with your estate planning and life insurance needs, your tax situation, educational financial planning, and other strategies to assure a comfortable financial life. Our open door policy is in effect 24/7, and we always welcome the opportunity to discuss your financial objectives with you.

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

Best regards,
Joe Rollins

Monday, July 2, 2012

"Where liberty dwells, there is my country...." Benjamin Franklin

In observance of Independence Day, the offices of Rollins Financial and Rollins & Associates will be closed on Thursday, July 4th and Friday, July 5th.

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”

If you require immediate assistance on Thursday or Friday, please contact Joe Rollins at 404.372.2861 or Our office will re-open for business on Monday, July 8th at 8:30 a.m.

Please be safe, and have a happy holiday weekend!

Best regards,
Rollins Financial, Inc.

Wednesday, June 20, 2012

Smart Refinancing Strategy

For the most part, debt is dumb. But for homeowners with existing mortgages, there are ways to borrow smart.

One smart borrowing tactic – especially for underwater homeowners – is by refinancing under the Home Affordable Refinance Program (“HARP”), the Obama Administration’s initiative to stabilize the housing market and help homeowners get into more affordable mortgages. And while the government’s initial HARP effort in 2009 was somewhat of a dud, the revamped program is giving hope to many homeowners.

In order to qualify for the new and improved HARP program, borrowers must meet the following basic criteria:

  • The mortgage must be owned or guaranteed by Freddie Mac or Fannie Mae (make sure to check both sites as they are not one and the same).
  • The mortgage must have been sold to Fannie Mae or Freddie Mac on or before May 31, 2009
  • Except for Fannie Mae loans that were HARP-refinanced between March and May of 2009, the mortgage cannot have been previously refinanced under HARP.
  • The current loan-to-value (LTV) ratio must be greater than 80%
  • The mortgage must not be in arrears at the time of the refinance.
  • Borrowers must not have had any late payments within the past six months, and you must not have had more than one late payment in the past 12 months.

  • Keep in mind that the foregoing criteria are just pre-qualifiers. You’ll need to contact your lender (which, in most cases, is simply the loan servicer) to determine whether you meet their other requirements as different banks use different loan variations. If you don’t qualify under your lender’s requirements, you aren’t precluded from checking to see if you qualify under another participating HARP lender’s program. And you should definitely shop around to see which lender will offer you the most competitive rate.

    The HARP is also encouraging borrowers to consider shortening the terms of their mortgage. Doing so would decrease the length of time it takes to pay down the loan balance and the borrower would receive a lower interest rate than traditional 30-year mortgages. If your circumstances allow, you will likely benefit from a HARP refinance with a 20-year or 15-year mortgage, and we believe this option is certainly worth looking into.

    Refinancing under the HARP could allow you to take advantage of today’s extraordinarily low interest rates and save you a significant amount of money. There are certainly other refinancing options available, but if you have no or very little equity in your home, this is a smart borrowing method worth exploring.

    Best regards,
    Rollins Financial, Inc.

    Wednesday, May 30, 2012


    From the Desk of Joe Rollins

    In the past, I’ve shared my suggestions for certain books that might be of interest to readers of our blog. As you can probably guess, I’m unable to read much of anything (besides tax law) from January through late April, but once tax season is over I try to catch up on all the books I find of interest. Since the end of April, I’ve read American Sniper; Lone Survivor; The Amateur; Game Change; Killing Lincoln; The Road to Freedom; Service; Fearless, and; Moneyball. I’ve been a busy guy!

    I found all of these books to have interesting aspects, but for some reason, I enjoyed the military books, American Sniper, Fearless, Service, and Lone Survivor, the most. If you want to gain a better understanding of and appreciation for the military, I highly suggest these books.

    I find books that focus on the demanding work of the U.S. Navy SEALs to be especially fascinating. The incredible hardships SEAL candidates must endure are thought-provoking, particularly since SEALs are too old to serve by the age of 35. Undoubtedly, SEALs are brave and highly skilled. I am in awe and thankful for everything they do for our country.

    Likewise, if you think that our military is only successful because of its sheer, overwhelming force, then these books will give you a better understanding of our current military’s precision as compared to only a short time ago. For instance, the U.S. has tragically lost close to 7,000 troops in the wars in Afghanistan and Iraq, but during the much shorter Vietnam War, the U.S. lost in excess of 50,000 troops. War is never pleasant, but today’s technology provides precision-guided weapons as compared to manpower, providing for far fewer casualties.

    Considering my fascination with economic and political matters, I am always looking for a good read on either of those subjects. But generally speaking, they are so negative and depressing that I find myself craving something more uplifting. The tremendous work that our military performs under the tremendous pressures of war is encouraging and speaks volumes to the security of the United States. It is also imminently more interesting at the current time than economics or politics.

    If you really want to read stories of incredible courage and patriotism, I recommend any of the books mentioned above.

    Best regards,
    Joe Rollins

    Saturday, May 26, 2012

    "For love of country they accepted death..." - James A. Garfield

    In observance of Memorial Day, the offices of Rollins Financial and Rollins & Associates will be closed on Monday, May 28th. Please note that all major U.S. stock exchanges will also be closed in honor of those who died in service to our country.

    We cherish too, the Poppy red
    That grows on fields where valor led,
    It seems to signal to the skies
    That blood of heroes never dies.
    - Moina Michael

    If you require immediate assistance on Monday, please contact Joe Rollins at 404.372.2861 or Our office will re-open for business on Tuesday, May 29th at 8:30 a.m.

    Please be safe, and have a great holiday weekend!

    Best regards,
    Rollins Financial, Inc.

    Friday, May 25, 2012

    Blame it on the Greeks – AGAIN!

    From the Desk of Joe Rollins

    Since May 1st, the S&P Index of 500 Stocks has gone down 5.25%, but on the positive side, it’s still up 5.6% for the year so far. The market is in turmoil again due to Greece’s anticipated exit from the euro-zone. Every positive component that causes an increase in the stock market is being realized and the U.S. economy continues to improve, yet stocks continue to fall.

    While I struggle sometimes to understand the reasons for the extraordinary moves we are seeing on the U.S. stock market, some investors find themselves so mystified that they fear for their long-term retirement assets. As far as the economic crisis surrounding Greece is concerned, I find it hard to make a legitimate argument for those ongoing concerns to cause such a dramatic loss in value on the U.S. stock market.

    A recent report reveals that Greece’s entire 2011 GDP stands at $312 billion, which reflects 100% of every dollar spent by every resident of Greece and is commensurate to the GDP of the small state of Connecticut. It is now estimated that the market capitalization of the U.S. stock market is roughly $55 trillion. Since the 1st of May, the market has gone down 5.25%, meaning it has lost $2.9 trillion in value – eight times Greece’s entire GDP! The reaction we’re seeing is way out of proportion to Greece’s potential impact on the global economy.

    Greece has been unable to dig out of its current debt woes by the austerity measures it has taken thus far. The will to reduce their standard of living just doesn’t seem to exist. With a goal to cut Greece’s government debt from 160% of GDP to 120% of GDP by 2020, Greece has pledged to cut the minimum wage and make labor markets more flexible. They have also instituted a new property tax and are placing 30,000 civil servants on partial pay. By and large, the Greek public has grown tired of the bailout conditions, with a wave of protests and strikes over the last week. Even so, Greece has collected very little tax revenue and spends a percentage well in excess of their revenues. As such, it is unlikely that these austerity measures will ever work – the deficit is just too large to overcome.

    It’s important to remember that even if Greece were to exit the euro-zone, it will likely have little effect on profitability in the U.S. In many regards, I do not see Greece’s return to a new drachma currency as having terribly negative consequences. By reverting to the drachma from the euro, Greece could effectively and quickly devalue their currency. This truly should not have a negative impact on the U.S. economy.

    Even with the reduced economic activity in Europe, earnings are continuing to accelerate in the U.S. Since earnings are the paramount reason for higher stock prices, investors should be more focused on that good news. As an example of how strong earnings have been, they are already at the highest level ever recorded in American finance. U.S. based earnings grew 15% in 2011, and for 2012, they are expected to grow another 10%. Believe it or not, earnings are anticipated to increase 12.5% in 2013. Even if earnings grow at only half of those projections, higher stock prices are very likely.

    Don’t drink the Kool-Aid! As I heard one trader say on the financial news this morning, “Maybe the European contagion was overstated.” Duh!! The reality is that stock markets don’t go down endlessly when earnings are accelerating like they are today.

    Since my last blog, there has been a wealth of good financial news. Check the headlines and you’ll see these positive trends:

  • The price of oil has fallen from triple digits to approximately $90/barrel, which is a gigantic movement in the oil market over a relatively short period of time. While gasoline is still expensive, it is dramatically less expensive than it was three weeks ago, and this positive economic stimulus is just starting to be felt.

  • Interest rates on long-term mortgages fell this week to the lowest ever recorded in the history of U.S. finance. Now you can obtain a 30-year mortgage for less than 3.8%. At no time in U.S. history have interest rates ever been this low.

  • For the first time ever, German Bunds – the German government’s federal bond – are now trading below 2%. The U.S. 10-year bond is currently trading at 1.72%. Never in the history of these two government-issued bonds have they ever traded this inexpensively.

  • U.S. earnings for the first quarter of 2012 exceeded all prior earnings records. It’s anticipated that earnings will increase in every quarter for the remainder of 2012 and 2013.

  • Even though the GDP for the first quarter registered at 2.2%, most economists are forecasting that GDP in the second, third and fourth quarters of 2012 will be at least 2.5%. There is no current evidence of any major downward moves in GDP so far in 2012.

  • At the end of the day, there’ve been no changes in true economic barometers since my May 1st post. If investors are confused as to why the market would drop 5.25% in only a three-week period when the financial news is no worse than it was three weeks ago. It can only be explained by how traders make money in financial markets. Traders can’t make a decent living without high volatility in the stock market. If the market goes straight up or straight down, then it’s virtually impossible for traders to compete with long-term investors. Therefore, it’s imperative for them to move the market in one direction or the other even if the basis for that movement is misplaced.

    What we’re seeing now is a classic case of irrational fear. I see nothing in the financial markets today to justify this negative swing, and therefore, I feel the market will quickly recover. As I’ve said so many times before, when you invest in the market for the long-term, it’s possible for there to be 10% movements in either direction. I believe that’s what we’re seeing now.

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

    Best regards,
    Joe Rollins

    Tuesday, May 1, 2012


    From the Desk of Joe Rollins

    Before I start my financial ramblings, I want to provide those of you who’ve inquired about my children, Josh and Ava, with an update. Josh turned 17-years old today, and he’s a great kid. He’s in his junior year at Woodward Academy, and he continues to excel at golf and is doing quite well in his studies. It’s hard to believe that he’ll be starting college in just over a year – it feels like he was just born yesterday!

    As for Ava, she’ll be turning one on May 22nd. Although she’s not quite walking, she is almost 32-inches tall and is nearly 26-pounds. She brings us an awful lot of joy in spite of her undying will to destroy the house and create chaos morning, noon and night. No one said that being a father at 62-years old would be easy, and while it’s not a cakewalk, it is still very rewarding.

    And now, on to the less interesting stuff…

    The month of April has closed and the first four months of 2012 have provided exceptional stock market returns. For instance, the stock market has already had an increase in value that is more expected for an entire year than just four months alone. The S&P Index of 500 Stocks is up 11.9% for the first four months of the year, the Dow Jones Industrial Average has charged ahead at 9.1%, and the NASDAQ Composite is at 17.3%. These returns are quite unexpected – but welcome – for a four-month period.

    In spite of this performance, the public’s skepticism and its distrust of Wall Street and the government has caused some of our clients to want to back off from stock market investing. In this post, I’ll give you some reasons why doing so would be a bad idea.

    As much as I’d like to, I can’t forget the devastation that occurred in investor portfolios during the financial meltdown of 2007 and 2008. However, many investors are unfamiliar with the performance of the indices since that time period. If we measured the period from June 30, 2007 through April 30, 2012, the results would reflect that the S&P is up 2.47%. Likewise, the Dow is up 11.22%, and the NASDAQ is up 21.85%. For all the gloom and doom expressed during the 2008 financial meltdown, the indices have recovered every dollar of that downturn, plus a little more.

    These are extraordinary times for investing. With all the negative publicity being reported on a daily basis, it’s important to focus on the items that make stock markets increase. Ponder these positive trends:

  • Even though earnings expectations for the last several years have been lofty, actual earnings have actually exceeded those expectations. Earnings are presently greater than at any other time in the history of the United States. Since earnings are what impact stock prices the most, this is the number one driving force of higher stock prices.

  • The U.S. Federal Reserve has essentially guaranteed that interest rates will not be increased until mid-2014. This means that for the next two years, interest rates will continue to border on zero. Higher interest rates can inversely impact stock market prices in that as interest rates increase, stock values go down. Further, higher interest rates create competition for investment dollars.

  • Undoubtedly, we’d all like to see an increase in jobs and the debt sectors of the market start to rally. However, from a stock market perspective, we’re actually better off with GDP being marginally positive but not completely on fire. If we had an economy exploding to the upside, interest rates would almost assuredly need to increase to accommodate higher economic activity. With a GDP reported in the first quarter of 2012 of only 2.2%, we’re currently experiencing a Goldlilocks economy – it’s not too hot, nor is it too cold. For stock market investing, a GDP of 2% to 3% is quite satisfactory.

  • As mentioned above, earnings are at an all-time high. Imagine how high earnings could be if GDP really took off like it should. Earnings could increase even higher if GDP were stronger.

  • Even though the stock market has increased approximately 30% from October 1, 2011 through April 30, 2012, stock prices are still cheap. With the P/E ratio still at moderate levels, it’s possible that the market will continue to expand as the year continues.

  • The 10-year Treasury bond continues to hover below 2% annual interest rates. As long as the 10-year Treasury continues at almost historic lows, you can expect to see stock prices expand. The current dividend rate of the S&P 500 is higher than the rate on the 10-year Treasury bond.

  • Of course, I could also provide a list of negatives, but in my opinion, the positives far outweigh the negatives at the current time. High on the list of negatives, however, is Washington’s total inability to appropriately function. I fully expect capital gains rates to increase in 2013 regardless of who is President – not because they should, but because Congress refuses to work together to accomplish anything. While income tax rates will undoubtedly increase in 2013, I don’t anticipate that to impact the stock market until interest rates start increasing in mid-2014.

    Unquestionably, the U.S.’s extraordinary deficits are a risk to our financial future. As an optimist, however, I doubt the public will allow these deficits to continue running amuck. Therefore, while the deficits are potentially endangering to our long-term financial security, I believe that we’ll soon have new elected officials in Washington who will change that scenario for the better.

    Those who continue to jump in and out of stock market investing are surely learning that it is impossible to be a successful market timer. The market moves up more days than it moves down, and it is believed that the market moves up on twice as many days as it moves down. Moreover, the days with large increases far exceed those days with large decreases. If you try timing your investments, you are certainly more likely to avoid big down days, but more importantly, you dodge the more numerous big up days.

    Knowing when to sell isn’t the hard part of market timing – it’s when to buy. While it’s not difficult to cut long-term risk in the stock market by market timing, it is virtually impossible to boost long-term returns using this technique. Purely on the fact that up days far exceed down days, investors are almost always better off being invested for the long-term rather than utilizing short-term strategies.

    Another positive concerns upcoming lower energy prices. There are almost daily financial news reports concerning the detriment of higher energy prices on the U.S. economy, and after spending billions of dollars on alternative energy efforts, it seems clear that no expenditure will make any type of dent in our need for fossil fuels. Our best bet would be to better utilize those fossil fuels, which is happening in this country. As we exploit new drilling in the U.S., the price of oil will fall as the summer progresses. I project that by the end of 2012, energy should be significantly lower – by at least 15% – than it is today.

    I fully expect the stock market to suffer some sideways movement during the summer months given the large increase in the stock market in the first four months of the year. However, I don’t see a major sell-off due to reasonable valuations, and I certainly don’t foresee us trading out of our positions in order to avoid a small sideways movement. Every day will not be a winner, but by year-end, there should be rewards for having stayed invested.

    With interest rates continuing at low levels and with earnings continuing at higher levels, I expect for the market to continue to rise for the rest of the year and forecast the S&P 500 to be 1,540 by December 31, 2012 (current valuation = 1,394). Therefore, based on a low valuation, it’s perfectly possible for the market to increase 10.5% for the remaining months in the 2012 year. This would mean that the S&P 500 index would have a total return at December 31, 2012 in excess of 20%. Wow!

    My S&P 1,540 forecast above was not just pulled out of thin air. To arrive at this projection, I reviewed Standard & Poor’s estimate for 2012 earnings for the U.S.’s 500 largest stocks, which they have placed at $110. I then placed a low multiple of 14 on that projection to arrive at 1,540. Again, 14 is a relatively modest multiple; over the last 30 years, the average multiple on the S&P has been approximately 20. My multiple of 14 reflects a conservative price from a long-term perspective, and it is not impractical.

    For skeptics who’ve avoided making IRA contributions for fear that the market is in for a big tumble, I can only reemphasize that the market is up over 30% in the last seven months alone and they missed that run-up. Cash sitting in money market accounts is earning practically nothing right now while money invested in securities is creating true long-term wealth. If you are a client, I encourage you to set up a meeting with us so we can show you our strategy for building your assets for a stronger, more secure retirement.

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

    Best regards,
    Joe Rollins