It's hard not to imagine that the drama we hear about in the news won't affect our investments - but what's important and what's not when you invest in the long term? Mike offers some insight into what he thinks is important, what he takes into account when he puts together portfolios, and maybe just some information you'll find interesting!

High Quality

By Adams Financial Concepts | January 17, 2018 | 0 Comments

What do the sockeye salmon of Redfish Lake in Idaho and CFM Consolidated have in common? Survival. In 2006, only four of this rare species completed the 900-mile trek back to Redfish Lake. Utilizing a MariSource Incubation System, scientists have helped the population grow to over 120 as of last year. MariSource is one of CFM Consolidated’s three divisions. Despite being hit hard during the Great Recession by both their own declined revenues and a couple of customers filing for Chapter 11, CFM Consolidated had the planning in place to survive. As with nearly every company at which I have looked following the Great Recession, CFM Consolidated maintained their commitment to providing high quality goods. When outsourcing might have saved money, they kept their manufacturing in the United States. Rather than putting product development on hold, they continued to maintain their cutting edge advantage.   For more information on all of these topics, I encourage you to listen to About Money, a weekly podcast and radio show. You can also follow us on Facebook and Twitter for blog updates, podcast news, and more! I want to hear your opinions; please leave a comment below and let me know your thoughts.  

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Greek Debt

By Adams Financial Concepts | January 17, 2018 | 0 Comments

The news is filled with concerns about Greece’s sovereign debt. It’s an investment concern and an economic concern. Some people are touting it as the beginning of another 2008 period. But, what’s happening now is not the same thing as 2008. The crisis then was worldwide. It was based on banks holding massive amounts of toxic assets. Greece’s debt is very small compared to the amount of debt extended in 2008. They have already defaulted on 60 percent of their debt. If they were to default on the other 40 percent, the banks would be able to also cover it. The big question is contagion. If Greece defaults will Italy, Spain, and Ireland also default?   For more information on all of these topics, I encourage you to listen to About Money, a weekly podcast and radio show. You can also follow us on Facebook and Twitter for blog updates, podcast news, and more! I want to hear your opinions; please leave a comment below and let me know your thoughts.  

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Four Reasons the United States Won’t Double Dip

By Adams Financial Concepts | January 17, 2018 | 0 Comments

When it comes to chocolate covered ice cream, I’m all for double dips. In terms of the United States economy, I don’t believe we will see one. At the beginning of 2011, I gave seven reasons I didn’t believe we would see a double dip. Despite the unpredictable world events and catastrophes, we didn’t. Our economy held steady. As I look at how 2012 is shaping up, I believe there are four reasons we will also not see a double dip this year either: 1) Consumers As we ended 2011, we saw consumers buying cars again and increasing their credit debt. While I don’t believe you will see people extend their credit as greatly as they did prior to the Great Recession, we are seeing the end of the consumer’s massive deleveraging. 2) Jobs Job creation has significantly increased. At the end of 2011, we saw a decrease in the number of filed unemployment claims. We also saw an increase in the number of new jobs created. I think this will continue. 3) Housing We will see the housing market begin to rebound. Last November I was joined by the President and CEO of Freestone Companies, Scott Griffin. He gave excellent insight into the current and future housing market. You can learn more about what he had to say here. 4) Banks Banks are in better shape than they were even a year ago. Plus, with the new Volcker Rule, banks have more restrictions placed on how they can use and invest their money.   For more information on all of these topics, I encourage you to listen to About Money, a weekly podcast and radio show. You can also follow us on Facebook and Twitter for blog updates, podcast news, and more! I want to hear your opinions; please leave a comment below and let me know your thoughts.  

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Flash Trading

By Adams Financial Concepts | January 17, 2018 | 0 Comments

In 2008 very few people had heard of credit default swaps, overnight repos, or collateralized debt obligations (CDOs).   Many of the firms that brought those financial creations to the market have brought dark pools and high frequency trading. Firms doing high frequency trading execute over half the orders in the stock market and probably place over 95% of the orders. Dark pools account for another 25-30% of trades. That leaves less than one out of four trades being done “the old fashioned” way. I believe it is important to understand what is going on and to keep the focus on the longer-term to build wealth and income. I first licensed as a financial advisor in 1986 (we called ourselves “stock brokers” in those days). There was the New York Stock Exchange, the American Stock Exchange, Over-The-Counter (OTC), and some smaller city exchanges like Philadelphia and San Francisco. Chicago traded options and futures. Individuals would “buy a seat” on the New Stock Exchange giving that person the right to make a market in often just one stock. That person would match buy and sell orders for that particular stock. Brokerage firms would hire “Floor Brokers” who would receive orders from the firms and run to the chair and offer or bid for a stock. Most people are familiar with the pictures of the stock exchange with the mass of brokers surrounding a market maker shouting their orders to buy and sell. That picture is long gone. Now it is computers that run the matching. Orders are delivered and cancelled in microseconds (there are 1,000,000 microseconds in one second). Over half the trades are computer generated through algorithms which are written to be run with no human intervention. This is the territory of high frequency traders (HFT). The HFTs make hundreds of billions of dollars taking advantage of high volumes of trades and small incremental profits. All of those come at the expense of you as an investor. It may not be much as a percentage of each trade, but in the aggregate, it is significant. To visualize the magnitude there is a company by the name of Spread that spent between $200 and $300 million to build a new fiber optic line from Chicago to New York City just to save 4 milliseconds (.004 seconds) in transmitting stock market data. Normal fiber optics networks are built along rail tracks and right of ways that are not the straightest path. Data travels at the speed of light through the optical fibers. By building a straight optical line Spread was able to lease the fiber optic cable for upwards of $20 million per year to a number of companies. All of that just for 4 thousandths of a second advantage over the trading of other firms. Times have changed. Instead of a few exchanges, there are over a dozen that trade stocks. They compete against each other for orders. It would seem logical, and big brokerage firms will argue, that this competition increases liquidity and saves money for investors. I doubt it. There was a time only a few years ago when I would place an order for a block trade of 100,000 shares and set the limit at the offer if I was buying or the bid if I was selling. The order would execute at the limit. But in the last few years I have placed orders at the offer or bid, but did not get filled at that price. I had to put the order in at 5 to 10 pennies above the offer or below the bid depending on whether I was buying or selling. Until I read the book Flash Boys by Michael Lewis I did not understand why the change. What I now realize is my order is routed to an exchange but before my order gets to the exchange high frequency trading algorithms will scoop in and execute trades in front of mine forcing me to pay more if I am buying or sell for less if I am selling. It is a disadvantage for my clients. It may only be a few cents a share for each transaction, but it is at the expense of my clients. I am a longer-term investor and look for significant gains in the stocks I buy for portfolios. A few pennies is not going to make a big difference in what we make on our portfolios, but over time, that will make some difference. In addition to the high frequency traders, there are the dark pools. Prior to the computer age, all trades used to be done on the physical exchanges. But with the advent of computers and as volumes increased, very large trades were done away from the exchanges and reported when complete. That was the infancy of the dark pools. At that time if a large order came to a brokerage firm, the brokers would go out and find the other side of the trade and when the buying and selling sides were lined up the trade would be reported. It was not often the matching occurred at the moment the order was initiated. It took time to line up the other side. That has given way to the dark pools. The big firms will do trades perhaps acting on both sides of the transaction as seller and buyer. They are not required to report the time of the trade or where the trade took place—just that a trade took place and at what price. In the book, Flash Boys, Michael Lewis recounts the story of the Merrill Lynch analyst who was charged by management to show their dark pool was good for the markets. What he initially reported to management was the dark pool was harming their clients. That was not the conclusion Merrill management wanted to hear so they kept sending the report back until it was changed to show what management wanted. Mary Jo White, the head of the Securities and Exchange Commission has delivered a couple public speeches where she has had harsh words for High Frequency Traders and even harsher words for dark pool operators. The SEC will probably take some action to curb high frequency trading and maybe make the dark pools more transparent. But as we have seen over the past decades, Wall Street hires very smart people who use their intelligence to game the system. Even curbs on HFT and dark pools will probably only lead to other manipulations of the markets. For me it is best to understand this and to invest in such a way that even with these manipulations clients can do well and maybe even benefit. For more information on all of these topics, I encourage you to listen to About Money, a weekly podcast and radio show. You can also follow us on Facebook and Twitter for blog updates, podcast news, and more! I want to hear your opinions; please leave a comment below and let me know your thoughts. Until next time, Mike  

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Flash Crash

By Adams Financial Concepts | January 17, 2018 | 0 Comments

A Flash Crash can be described as a quick drop and recovery in stock or security prices. Over the years, numerous companies have witnessed shared views of plunges and spikes. “Flash crashes will occur and it will happen again,” said Todd Schoenberger, managing director at LandColt Capital. “If you are a retail investor, you’re always going to look at the market with a cautious eye because you’re going to be nervous over whether Wall Street has your best interests in mind.” Three years ago, in 20 breathtaking minutes, the stock market saw the DOW Jones Industrial Average lose nearly 1,000 points, only to rebound just as quickly. “You have 60 percent of America invested in the market either directly or through 401(k) or pension plans. That means six out of every 10 are vulnerable to a flash crash, and the only way to reduce or eliminate that risk is just not to be invested at all,” Schoenberger said. “And that’s not an option, either.” For more information on all of these topics, I encourage you to listen to About Money, a weekly podcast and radio show. You can also follow us on Facebook and Twitter for blog updates, podcast news, and more! I want to hear your opinions; please leave a comment below and let me know your thoughts.  

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Will There Be A Double-Dip?

By Adams Financial Concepts | January 17, 2018 | 0 Comments

In a market driven by fear and greed, generalizations are common. With stocks rising and falling so quickly, it’s easy to panic and think a double dip is not far away. Do we appear to be in a slow period? Yes. Does this mean we’ll double dip? I don’t think the probability is very high. Why? We are in a very different time than we were in 2008. Take a look at these five facets of the economy with me and see if you agree. Business Investing & Manufacturing The Purchasing Managers Index (PMI) is an excellent forecasting variable. It shows when a company is gearing up and ordering more goods or ordering less and gearing down. In 2008, it dropped as low as 35 as the manufacturing industry contracted. Business after business laid off employees. They were cash strapped and stopped ordering and producing goods. However for the last year, manufacturing has been expanding. Businesses are showing record profits and cash flow. As of August 2001, the national PMI was 50.6. In 2008, multiple factors made the manufacturing industry contract. One of the biggest problems it faced was a lack of hard currency. For a period of time, even banks were experiencing a cash flow problem. Banks were being pushed into mergers because they didn’t have enough capital. Rather, they had toxic assets on their books. Now, the banks are stronger. They have money. The problem is, they have more money than people want to borrow. Government There are definite concerns about government spending. While the federal government appears to be cutting back, it is the state and local government who are feeling this impact. Their spending is down 3.5 percent over the first half of this year, which has taken three quarters of a percent off the Gross Domestic Product (GDP). A large portion of this decrease has come from laying off government employees, like teachers. Over six thousand teachers have been laid off. However, there is talk of jobs being created and putting people back to work. If this happens, the states will benefit from a boosted economy. Trade Trade is higher in 2010 than 2009, and 2009 was higher than 2008. However, the European debt is a major concern for our trade industry. With the introduction of austerity programs in Britain, Greece, Spain, Ireland, Italy, and other countries, the value of the Euro is decreasing. As the United States dollar becomes stronger, we can expect to see less exporting. This doesn’t mean our manufacturing production will see an extreme hit because the majority of our production stays in the states. Housing Market The housing Market used to be six percent of the GDP. In the last five years, it dropped significantly, falling as low as two percent. Now this drop is bottoming out. Houses are beginning to sell and prices are starting to rise. Consumer Consumption Consumption is continuing to increase. It’s not going gangbusters, but customers are still making purchases. Furthermore, since 2008 the consumer has reduced their debt by over a trillion dollars. It’s now less than the average they carried in the last 30 years.   For more information on all of these topics, I encourage you to listen to About Money, a weekly podcast and radio show. You can also follow us on Facebook and Twitter for blog updates, podcast news, and more! I want to hear your opinions; please leave a comment below and let me know your thoughts.  

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Energy, Money, and the Markets

By Adams Financial Concepts | January 17, 2018 | 0 Comments

Turn off the lights! They’re costing you money. The soft white, incandescent bulbs burning away on your desk are eating away at your pocket book. It’s been predicted, by 2050 the world will need to generate twice as much energy as it does currently. What does this mean for you? Opportunity – to save money and invest wisely. Money Saving Opportunities As a business owner operating in a large space such as a warehouse, reducing your energy usage can cut annual costs significantly. Additionally, most energy companies offer rebates as large as 70 percent on energy efficient upgrades. Investment Potential The International Energy Agency estimates by 2050 $45-trillion US dollars will be invested in global energy in order to meet greenhouse gas reduction requirements. Development of new technology means new companies, new, profits, and new investment opportunities. For additional insight about how energy is affecting the market, I was joined on About Money by Don Nielsen, the CEO of Light Doctor.   For more information on all of these topics, I encourage you to listen to About Money, a weekly podcast and radio show. You can also follow us on Facebook and Twitter for blog updates, podcast news, and more! I want to hear your opinions; please leave a comment below and let me know your thoughts.  

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The Ebola Virus and the Great Recession

By Adams Financial Concepts | January 17, 2018 | 0 Comments

WARNING – Sensitive Material. Weak stomachs beware. Two of the scariest books I’ve ever read were The Hot Zone by Richard Preston and Too Big To Fail by Andrew Ross Sorkin. On the surface, Preston and Sorkin wrote about entirely different topics – the Ebola Virus and the Great Recession. But, I think they were analogous. The Ebola Virus causes a patient’s internal organs to liquefy. Eventually they bleed out of every orifice and die. How does this grotesque death relate to the Great Recession? Sorkin’s book, a behind-the-scenes, moment-by-moment account takes you into Lehman Brothers, secret meetings in South Korea, and Washington D.C. corridors. It introduces you to the most powerful men and women in finance and politics. It shows you how our economy melted from the inside out. I can hear the pushback to my comparison. “Our economy didn’t die,” you say. “It’s recovering.” You’re right. The books are analogous. They’re not the same. Inventive, forward thinking businesses owners survived the bleed. They’re healing, growing – succeeding.   For more information on all of these topics, I encourage you to listen to About Money, a weekly podcast and radio show. You can also follow us on Facebook and Twitter for blog updates, podcast news, and more! I want to hear your opinions; please leave a comment below and let me know your thoughts.  

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Costly Healthcare

By Adams Financial Concepts | January 17, 2018 | 0 Comments

An apple a day keeps the doctor away. Or does it? There are 32 nations with a greater life expectancy and 37 countries with a lower infant mortality rate than the United States. Either we aren’t eating enough apples or there’s something else going on. So, why does the United States remain the premier option for rare cases? And, how can we take charge of our own healthcare to lower costs and improve results? Nearly 18 percent of the Gross Domestic Product (GDP) in 2009 went to healthcare spending. A compilation of studies from the Congressional Office shows nearly 50 percent of this cost is associated with technology. This makes the United States the primary choice for all major medical cases of the world’s affluent. Just how much of a technology advantage does the United States have? In Seattle alone, only a couple of years ago, there were 19 magnetic resonance imaging (MRI) machines. In all of British Columbia, there were three. MRIs find problems such as tumors, bleeding, injuries, blood vessel diseases, or infections. Often this information can’t be found through x-rays, ultrasounds, or computed tomography (CT) scans. Without access to an MRI, patients can suffer severe or fatal medical setbacks. MRI’s come with a significant cost. So do surgeries, cutting edge medicine, and the best doctors. Often the United States’ poor statistics, such as life expectancy and infant mortality, are associated with these exorbitant costs which prevent the economically disadvantaged from receiving medical care. How can you, as the healthcare consumer, improve your medical treatment without the huge price tags? One way is to be an educated healthcare consumer and make educated decisions about your own course of treatment. Just ask West Shell, CEO of Healthline.com. This website focuses on providing clinically accurate, technically relevant health care information to consumers. Reaching over 100-million people a month, it helps you research problems, doctors, and potential treatment plans so you can make informed decisions.   For more information on all of these topics, I encourage you to listen to About Money, a weekly podcast and radio show. You can also follow us on Facebook and Twitter for blog updates, podcast news, and more! I want to hear your opinions; please leave a comment below and let me know your thoughts.  

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China – Why It Grew

By Adams Financial Concepts | January 17, 2018 | 0 Comments

China is in the news. Their stock market seems to be in free fall; their economy seems to be slowing down; their real estate market is questionable. So what is happening and how did they get to this point? 40 years ago China was an agrarian society. Today they are the 2nd largest economy in the world, second only to the United States. The change was very deliberate and followed a pattern from history. It is well worth looking at history to see the implications for investments and impact on investments. In 1661 Louis XIV began his reign in France. At that time France was close to bankruptcy. The French had fought 3 major wars and 2 minor ones. In those days, paper money did not exist. Payment was made in gold and silver. But France had no mines. To pay off war debt and to operate the government France needed a different source of capital. Louis XIV appointed Jean-Baptiste Colbert in 1665 to solve the financial problems. France had some industry, but it was mostly small crafts that were not competitive world-wide. Colbert settled on building business in new industries like glass and textiles. To do so, he established a network of spies and sent them to other countries to determine who were the best craftsmen and entrepreneurs. They were sent to steal the secrets to the production machinery and processes and technology. They recruited the exceptional craftsmen and entrepreneurs from other countries offering many “Royal Privileges”: no taxes, government financing and guaranteed government purchase orders for their products. Duties were assessed on similar products made outside France so the French companies were given protection from competition. Colbert was ruthless, determined, and able with the full control of the finances of France to make it happen. France had a large rural population and very high unemployment. That allowed Colbert to build factories that employed over 1,000 workers. That was something new in France. He paid minimal wages, put workers into dormitories, worked them 14-16 hours per day and gave only religious holidays as days off. Colbert got into a dispute with the Roman Catholic Church claiming they had too many religious holidays. Colbert encouraged women to marry before they were 20 years old so their children would increase the workforce. Having pirated the technical expertise and intellectual property, Colbert needed to make sure it did not leave France. So new Royal decrees were put into effect. Once in France, skilled craftsmen were not allowed to leave. If they did leave, they would end up by punishments from rowing in one the King’s galley ships to execution. It was decreed that French craftsmen could not import products. There were over 15,000 small entrepreneurs executed for the crime of importing foreign cotton cloth. To ensure quality, Colbert established a corps of state-funded industrial inspectors to verify the quality of products produced in France. French industry became renowned for their quality in many luxury goods. Some of those companies continue today like Gobelin tapestry and St. Gobain glass. Jean-Baptiste Colbert was thoroughly nasty, widely hated by many, both French and non-French. But he launched France on the path to large-scale industrialization within a relatively short period of time. It is a business or economic model we call “Mercantilism”. We may be living in the golden age of mercantilism. China is perhaps the most visible example of that today. They have achieved an astonishing success – but not one without problems. We are just beginning to see the problems today. The Ruling Communist Party controls the land. They can decide where to locate business. They decide on the need for roads, airports, railways and public structures. There are no legal restrictions nor any delay. Development is not accidental. The Party has a long-term development plan and they control the key industries. They promote exports and try to limit imports to build a trade surplus. The Party owns the banks so they can direct who gets financing and who does not. They can carry what they consider “key” companies regardless of the efficiency and profitability (or lack thereof). The Party controls the allocation of resources to different parts of the economy effectively giving them control of the economy itself. The Party controls foreign policy and can use that to direct the business inside and to some extent outside of China. The Party decides what industries are of major importance and can allocate resources to those industries and companies within that industry. Large companies in critical industries are either fully government owned or majority government owned. Even some of the publicly traded companies are majority government owned. The Party gives significant incentives (like Colbert) to foreign manufacturers. They will give cheap labor (at least in the beginning), with modern infrastructure. 70% of the Chinese exports are from relocated plants. Foxxconn, for example employs over 100,000 just to manufacture Apple products almost all of which are exported. The workers are housed in dormitories. The Chinese appropriate technology like Colbert. For example, the early high speed trains were joint ventures with the Japanese and Dutch partners’ technologies. Now the Chinese partners have taken that technology, made a few minor changes and claim it as their own intellectual property. The Chinese partners now compete on other projects directly against the Japanese and Dutch. The Chinese model is not that different from the Colbert model. It has attracted attention from other countries trying to copy it: Brazil, Malaysia, India, Thailand, and Vietnam. But there are, or at least can be, significant problems in the mercantilism model. State owned companies can easily become unprofitable. The taxpayers end up paying. An example is the Vietnamese Shipbuilding Industries Group which as incurred multibillion dollar losses and debts. Operating losses tend to balloon since it is the government that bails out the companies. The mercantilism approach is spreading at this time. The companies which are deemed key in those mercantilism countries are very tough competitors because profitability does not matter to them. As Americans we tend to see the world through American eyes. It is not the same in the rest of the world. Diversifying into international stocks is not the same as investing in US stocks. Even US companies that partner with foreign firms can be hurt. What we see in the Chinese market today is, in my opinion, the result of the weakness of the mercantilism business model. In America, the growth is slower but directed by demand. That is not true of the mercantilism countries and that is, in my opinion a very significant problem for business in those countries like China. Much of the information was drawn from the book Entrepreneurship in the Global Economy by Henry Kressel and Thomas Lento.   For more information on all of these topics, I encourage you to listen to About Money, a weekly podcast and radio show. You can also follow us on Facebook and Twitter for blog updates, podcast news, and more! I want to hear your opinions; please leave a comment below and let me know your thoughts.

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