• Forecasts of global growth are coming down. The OECD reduced its 2019 projection from 3.2% to 2.9%, thus prompting the new IMF chief to warn of a “synchronized slowdown.” • OPEC and its oil-producing allies may again reduce its daily output at their Dec. meeting. The possible reduction is the result of a 26% drop in crude oil prices in the past 12 months. • Natural gas demand is rising but output is growing much faster. Stockpiles thus have increased 16% from last year’s level. The net result has been a 21% price drop for the year. • Pervasive economic pessimism notwithstanding, consumer sentiment continues to be strong. The Univ. of Michigan’s index rose to 96 in early Oct., beating the market’s forecast of 92. IN THIS ISSUE P2 Equity Markets Move Upward As Global Economic Growth Fades P3 4Q ’19: The Rally Is Ongoing But Fewer Stocks Are Participating P4 Modern Monetary Theory And Deficit Spending Heard On Wall Street INVESTMENTS ADVISORY INSURANCE Q4 2019 Larry Herold has invited me to write the introductory letter to the firm’s 4Q newsletter. I am very pleased to accept the challenge. Whether we are young or old, the subject of retirement should be high on our list of priorities. Over the years since Bernard Herold & Co., Inc. was founded, our associates have worked with many clients and their families to develop workable retirement plans. While it is true that there is no “one size fits all” retirement plan, there are some common goals that our professional associates can help you achieve: • Creation of a Savings Plan - Individual Retirement Accounts (Traditional or Roth) are good beginnings. Self-employed individuals should consider establishing a SEP IRA. Moreover, employees should take advantage of employer-sponsored retirement plans (401[k]s or 403[b]s). • Funding a Retirement Plan -Most people view this as the most problematic aspect of any retirement plan. Herold’s financial planning associates can play a major role in helping individuals and families implement a workable savings plan. Herold’s midtown New York office is well located for your convenience. Also, our Staten Island office is only a ferry boat or an Outerbridge Crossing away. Our staffs look forward to your visit. Sincerely, Mario Giammarco, Jr. • Social Security recipients will see a 1.6% raise in payment benefits in 2020. That cost-of-living increment compares with a 2.8% rise in 2019. • The cycle of declining interest rates perpetuated by central banks has been a boon for bond funds. Investor cash flow, at $100 billion during 3Q '19, contrasts with declines recorded by stock funds. • In Federal Reserve terms, the rate of inflation is below its benchmark level of 2% per annum. However, led by housing costs (33% of the CPI), core inflation is up 2.4% over the past year. Low interest rates are contributing to strength in the Real Estate sector. • Artificial Intelligence (AI) is a relatively new buzzword for businessmen/consumers/investors. Not so to the legendary Greek author, Homer. In his central work “The Iliad,” he refers to voice-activation on the part of the skillful god Hepaestus. Amazon’s Alexa, please take note! THE BERNARD HEROLD & CO., INC. newsletter
Transcript
• Forecasts of global growth are coming down. The OECD reduced its 2019 projection from 3.2% to 2.9%, thus prompting the new IMF chief to warn of a “synchronized slowdown.”
• OPEC and its oil-producing allies may again reduce its daily output at their Dec. meeting.The possible reduction is the result of a 26% drop in crude oil prices in the past 12 months.
• Natural gas demand is rising but output is growing much faster. Stockpiles thus have increased 16% from last year’s level. The net result has been a 21% price drop for the year.
• Pervasive economic pessimism notwithstanding, consumer sentiment continues to be strong. The Univ. of Michigan’s index rose to 96 in early Oct., beating the market’s forecast of 92.
IN THIS ISSUE
P2 Equity Markets
Move Upward As Global
Economic Growth Fades
P3 4Q ’19: The Rally
Is Ongoing But Fewer
Stocks Are Participating
P4 Modern Monetary Theory
And Deficit Spending
Heard On Wall Street
INVESTMENTS ADVISORY INSURANCE
Q42019
Larry Herold has invited me to write the introductory letter to the firm’s 4Q newsletter. I am very pleased to accept the challenge.
Whether we are young or old, the subject of retirement should be high on our list of priorities. Over the years since Bernard Herold & Co., Inc. was founded, our associates have worked with many clients and their families to develop workable retirement plans. While it is true that there is no “one size fits all” retirement plan, there are some common goals that our professional associates can help you achieve:
• Creation of a Savings Plan - Individual Retirement Accounts (Traditional or Roth) are good beginnings. Self-employed individuals should consider establishing a SEP IRA. Moreover, employees should take advantage of employer-sponsored retirement plans (401[k]s or 403[b]s).
• Funding a Retirement Plan -Most people view this as the most problematic aspect of any retirement plan. Herold’s financial planning associates can play a major role in helping individuals and families implement a workable savings plan.
Herold’s midtown New York office is well located for your convenience. Also, our Staten Island office is only a ferry boat or an Outerbridge Crossing away. Our staffs look forward to your visit.
Sincerely,
Mario Giammarco, Jr.
• Social Security recipients will see a 1.6% raise in payment benefits in 2020. That cost-of-living increment compares with a 2.8% rise in 2019.
• The cycle of declining interest rates perpetuated by central banks has been a boon for bond funds. Investor cash flow, at $100 billion during 3Q '19, contrasts with declines recorded by stock funds.
• In Federal Reserve terms, the rate of inflation is below its benchmark level of 2% per annum. However, led by housing costs (33% of the CPI), core inflation is up 2.4% over the past year. Low interest rates are contributing to strength in the Real Estate sector.
• Artificial Intelligence (AI) is a relatively new buzzword for businessmen/consumers/investors. Not so to the legendary Greek author, Homer. In his central work “The Iliad,” he refers to voice-activation on the part of the skillful god Hepaestus. Amazon’s Alexa, please take note!
THE BERNARD HEROLD & CO., INC. newsletter
A cursory performance analysis of world stock markets indicates that investors have done rather well this year. Returns of 15.4% (DJIA), 18.7% (S & P 500), and 20.6% (NASDAQ) respectively puts our markets near the head of the global performance parade through the nine months of 2019. That conclusion belies the point that 3Q results for U. S. stocks were mediocre at best. Moreover, most foreign markets were lower in 3Q 2019 and their performances were exacerbated by the strength in the U. S. dollar.
A more intensive analysis of group price movements reveals that traders-investors gravitated to bond-proxy sectors in order to out-perform the overall market. That change in equity preferences was most notable in the Utility sector which advanced 8.4% during 3Q ’19. Also, it is worth noting that bond funds out-performed equities during the 3rd quarter: +2.1% vs. +1.2% for the DJIA and S & P 500.
Equity performance notwithstanding, businessmen around the world seemingly are climbing an economic/political “wall
of worry.” Europe’s industrial sector…led by Germany with a 0.6% decline in the month of August…was falling at a 2% annual rate. Brexit uncertainties are adding to the overall problems in that part of the world. Further, the financial question marks revolving around the U.S. imposition of new and/or higher tariffs seem endless. It is little wonder that the profit outlook for Corporate America is beginning to erode. S & P 500 EPS is now projected to decline 3%-4% in 3Q ’19 with 10 of the 11 market sectors receiving downward revisions.
Despite the doom and gloom forecasts emanating from some business corners, we believe that “all is not lost.” For instance, consumer spending has proven to be resilient with a strong Holiday Season now in sight. Moreover, yet to be heard from…again…is the Federal Open Market Committee (FOMC) announcement of another reduction in short-term interest rates. Finally, although we are less than optimistic about the near-term prospects for resolution of China-U.S. tariff conflicts, positive surprises cannot be ruled out. With interest rates remaining at very low levels, stocks continue to be the investment of choice.
Equity Markets Move UpwardAs Global Economic Growth Fades
Q4 2019
OUR COMPANIES
BERNARD HEROLD & CO., INC. is a registered broker dealer founded in 1972 by Bernard Herold. It is a member of FINRA and SIPC and provides financial services to institutional and individual customers. BH & Co. has about $1 Billion in customer assets. Its offices are located in Manhattan and Staten Island.
HEROLD ADVISORS, INC. was founded in 1975 also by Bernie Herold. It is an Investment Adviser regis-tered with the SEC. Herold Advisors provides portfolio management services to in-dividuals, business entities, trusts, estates, pension and profit sharing plans, charita-ble organizations, founda-tions and other institutions on a discretionary basis. In addition, Herold Advisors offers these services under a management account pro-gram or a wrap‐fee program.
HEROLD INSURANCE AGENCY, INC. was found-ed in 1987 and furnishes customers with fixed annu-ities, life insurance and oth-er insurance products.
4Q ’19: The Rally Is OngoingBut Fewer Stocks Are Participating
THE BERNARD HEROLD & CO., INC. newsletter
Q4 2019
Supported by falling interest rates and expectations that the tariff conflict between the U. S. and China may soon be resolved, the S & P 500 is up about 20 % through mid-October. That average now hovers within a fraction of its all-time high that was set in late July. Despite that rather impressive performance, there are signs that various market dynamics are slipping. Also, downward revisions in earnings estimates are occurring with disturbing regularity.
Technically, it is worth noting that the number of stocks hitting 52-week highs has fallen since June. Operationally, 3rd quarter earnings projections have moved downward from a 0.2% shortfall estimate made in June to a 3%-4% decline now expected. Led by Energy/Technology/Materials, negative revisions were made in 10 of the 11 Standard & Poor’s market
sectors. The only sector in which 3Q estimates were raised was Real Estate.
Notwithstanding the specious earnings performance anticipated for the 3rd quarter, analysts remain positive about 4th quarter earnings prospects as well as for 2020 as a whole. However, many believe that additional downward revisions are likely before 2019 is over.
The shift in investor interest toward bonds was apparent during 3Q ’19 and that shift continued during the early weeks of the 4th quarter. According to Investment Company Institute statistics, bond funds attracted an additional $100 billion of assets while U.S. and International stock funds witnessed outflows. Moreover, bond funds out-performed their equity counterparts during the quarter: +2.1% vs. +0.3% for U. S. stock funds.
CONTACT US ANY TIME TO SET UP A MEETING
THE BERNARD HEROLD & CO., INC. newsletter
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LARRY HEROLD 805 Third Avenue, 18th Floor New York, NY 10022Tel: 212-371-3950Fax: 212-758-4967
MARIO GIAMMARCO1190 Hylan Blvd.Staten Island, NY 10305Tel: 718-720-1600Fax: 718-720-5057
805 Third Avenue, 18th Floor New York, NY 10022
Modern Monetary TheoryAnd Deficit SpendingWith the presidential campaign about to begin in earnest, voters of all stripes are likely to be deluged with progressive economic thinking that currently is termed “Modern Economic Theory (MMT).” That catch-phrase can be translated to mean (virtually) unlimited government spending. A basic premise of MMT is that there will be no deleterious effects upon the value of the U. S. dollar, the American standard of living, or to civil liberties.
Economic proponents of Modern Monetary Theory argue that sovereign government is not financially constrained in its ability to spend on goods and services because it is doing so with its own currency. Further, the assumption is that any inflation resulting from deficit spending can be controlled by a combination of taxation and issuance of bonds. In that regard, the current rate of inflation is running at a rate below 2% per annum while America’s outstanding debt now aggregates $22 trillion. For the 12 months ended July 1, our budget deficit totaled $962 billion, or 4.5% of Gross Domestic Product.
The rate of interest on federal debt currently is less than 2%. An increase in that rate to 3% would serve to raise our fiscal deficit by approximately $220 billion.
Just how Modern Monetary Theory will/will not be implemented after the November 2020 election is a subject open for conjecture.
BREAKING NEWS: The S & P 500 sets a record closing high of 3,039.42 near the end of October.
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