Still A Bull Market?

Spectrum developed a propriety indicator that shows us when to step to the sidelines to reduce equity exposure. This methodology is designed to capture many technical indicators and consolidate them to illustrate bullish and bearish environments.

Created with TradeStation. © TradeStation Technologies, Inc.  All rights reserved.

The lower section charts this methodology and provides “buy” and “sell” points indicated by the yellow circles. This macro view of the general market can be used not only in equity positioning but also in our bond models.  Risk management is at the forefront of our investment philosophy and preserving principal is extremely important for our clients.

InvestTech says it best in its November 17, 2017 issue.

If the S&P 500 closes high in November, it will have posted a positive total return for 13 consecutive months, surpassed only once in 90 years – 1959. The next year (1960) the economy entered a recession.
We’re not sharing these insights because we have turned bearish in our market outlook. We haven’t.  Most technical evidence and virtually all macroeconomic data still point to new bull market highs immediately ahead.  However, it is becoming increasingly important to remember that trees do not grow to the sky, and bull markets do not last forever.  And don’t forget that virtually every bear market except one (1956) has repossessed or taken back roughly one-half or more of the previous bull market’s gain.  www.investTech.com

it is becoming increasingly important to remember that trees do not grow to the sky, and bull markets do not last forever. 

Spectrum agrees. Our models also indicate a bullish market environment for equities so until our indicators reveal elevated risk we will participate, but our exposure is watched closely on a daily, hourly, even minute by minute basis.  We will act quickly to reduce exposure when our indicators reveal elevated equity risk.

Equally important to remember – just like all bull markets come to an end, bear markets end as well. Spectrum’s philosophy, investment methods, and analysis tools allow us to position our client’s preserved principal to take advantage of the next market opportunity.

US Dollar Impact on Bonds and Interest Rates

Well known technical analyst and commentator, John Murphy, CMT, authored the groundbreaking book, “Intermarket Technical Analysis”, published in 1991. He covered his research of how stocks, bonds, commodities, and currencies influence each other with varying degrees and various lead and lag times.  Armed with a ruler, a plain white sheet of paper, and a pencil, I was able to make a cross comparison grid that displayed all the asset classes he noted in the book.  Each cross comparison highlighted the direct or indirect influence, the lead, lag or coincident impact, and the typical time in months of that impact.  The US Dollar stood out on the grid because his work found that it had a leading tendency across most of the asset classes with a couple being coincidental while not being a laggard to any.  A couple of years later, in 1994, I met John at a conference.  Like a star struck teenager getting a Taylor Swift autograph, I excitedly had him sign my copy of his book.  I also showed him the grid.  He smiled and said, “perhaps I ought to add something like that to my next revision”.  That made my day.  He also said something extremely important.  He said that he was noticing the intermarket relationships were evolving…

The US Dollar is like the wind blowing through the investment world. It can act as a headwind or a tailwind to most all asset classes.

Sometimes the influence is only slight and other times the gusts can be highly influential and blow an asset sharply off course.  Over the last 25 years, the world has changed significantly.  Technical or chart-based investors focus less on the why and more on the bottom line.  That said the dollar’s role has evolved as relatively new players have entered the scene.  Historically small economies, such as China, have recently taken on greater roles in trade.  Global oil trade in US Dollars has undergone correlation changes as the US has become less dependent on foreign oil.

With what has been covered so far, there are many paths we can walk down in how the US Dollar influences other assets or is impacted by other assets. To rein it in, let’s start with bonds and interest rates.

Created with TradeStation. © TradeStation Technologies, Inc.  All rights reserved.

In our example (chart above), we will use the iShares 20+ Year Treasury Bond ETF (TLT) to represent longer-term bond prices. Keep in mind as bond prices rise, interest rates fall.  As mentioned earlier, the US Dollar is like a wind that generally blows against the direction of bond prices and in the same direction of yields.  At the risk of oversimplifying, rising rates attract dollar denominated investment.  A reason why that risks oversimplification is because investors often take action in anticipation of future events.  Therefore, the US Dollar can lead if domestic economic activity is improving, attracting investors from around the globe to need US dollars for US investments.  As economic activity improves, interest rates rise which can increase demand for dollars.  However, sometimes interest rates are held artificially low as economic activity shows signs of improvement.  I have heard it said that the US Dollar is the stock certificate of the United States.  If people are bullish on America, then they need US Dollars to put their investment plan in action.  So there really is not a consistent starting point but we can recognize the inverse nature of the US Dollar to bond prices.  Don’t be too eager to assign a cause and effect because sometimes demand for the dollar leads and sometimes it is demand for bonds.  Be satisfied in simply knowing a relationship exists.  Arrows on the chart illustrate the concept of inverse directional bias.  The general trend of the TLT has been up during the first three quarters of 2017, while the general trend of the dollar is down.  Trend direction appears to have changed in early September.

So why go through all the trouble? Investors implementing charting techniques may find it easier to analyze the dollar and then draw conclusions about bonds and interest rates.  Traditional chart methods such as breakout/breakdown implications and trend line breaks are much more misleading on charts of the TLT versus the lower volatility trending nature of the US Dollar.  No method is perfect but it only takes a quick look to conclude the price action in the TLT is more volatile than the US Dollar.

It can be very frustrating to learn a new concept and have it appear to not work. Setting expectations is important and in this case, the inverse direction bias of the dollar to bonds should not be assumed as being in rigid lock-step.  In the lower pane of the chart, two measures of correlation are displayed.  If the dollar (UUP) moves in the opposite direction as the bond (TLT), then a blue dot is plotted at -1.0.  Those are the days in which the theme of this blog is easy to embrace.  If the dollar (UUP) moves in the same direction as the bond (TLT), then the blue line is plotted at +1.0.  During 2017, there are many days in which the bond and the dollar moved in the same direction.  For example, those are the days in which a viewer may be tempted to abandon these concepts – abandoning what ultimately could be a useful concept.  A red line can be seen in the lower pane that represents a 21-day average of the 1-day correlation.  Other than in mid-February and mid-July, the rolling 21-day average of correlation fits the norm of being inversely correlated.

If we are comfortable with the idea of inverse correlation but with the understanding it is not precise, then we can take the next step. Instead of focusing on implementation of trend analysis and other charting techniques applied to bonds or interest rates,

applying methods to the less volatile US Dollar could prove useful.

Conclusions derived from chart analysis of the dollar can then be transferred over to bonds (inverse conclusions) or the interest rates (same conclusions).  Actual chart-based methods are vast and beyond the scope of this blog.  The bottom line concept is if bullish conclusions are derived after assessing the dollar then a bullish outlook on interest rates (bearish on bond prices) can be concluded.

Chart-based assessment of the US Dollar should not be the only method but can be a useful tool to investors seeking to diversify analysis techniques within bond and interest rate assessment. Lower relative volatility of the US Dollar may lead investors to insights more difficult to conclude if focusing methods on underlying assets with higher volatility such as long-term interest rates.

Selective Leverage: Achieving Returns and Low Beta

If you could purchase an apartment building today that produced a cash flow after all expenses of 8% a year, you might be pleased with your cash on cash return in the current interest rate environment. If you financed your property with a 50% mortgage which had an interest rate of 4%, you could purchase two apartments for the same equity. Scenario one has a net investment return of 8%, but the second scenario will generate a 12% net rate of return on the same investment. A downturn in real estate values might depress the investment return upon sale, but increasing values will give an even higher return. This uses the concept of leverage which can have significant advantages in certain market conditions.

The chart below illustrates the performance of the SFI Floating Rate Index since 2012. This index is an average of four short-term senior floating rate mutual funds which accrue a daily dividend. It is normally a low risk investment that has a dividend payout currently of about 5%. Let’s say if I were able to borrow funds currently at 1.5% , and have a 50% loan amount like the previous example, I will enhance my return by 3.5% a year on the portfolio. The difference between this example and the real estate example is

with liquid investment vehicles there is daily liquidity on the investments- you must have liquidity to manage risk well.

You can go to a liquid cash position without a real estate commission or waiting around for a buyer to come along. The liquidity of the investment vehicle combined with the low volatile characteristics of this asset class can make the use of selective leverage low risk. This concept can enhance returns while still controlling investment risk when you layer a low volatile investment, like the floating rate exposure, with maybe riskier asset classes, like high yield bonds in a fund.

Selective leverage is one tool to use to meet the objectives of enhancing returns and controlling investment risk- something every investor and shareholder want. I have been applying leverage to high yield bonds and other fixed income asset classes since 1996 in SMA strategies and later in the mutual funds I manage, via derivatives and swap contracts, with the ability to still maintain low beta. Why? Because I think about risks before returns, I always use liquidity, and I know the characteristics of my underlying investments. There are times to use leverage and times when the entire portfolio should be in a liquid cash position. There must be expertise present to determine when, and where, to put leverage on or take it off. Leverage and the tools you use to present leverage in your funds or portfolios does not always mean higher risk.

How many of you have enough money?

I asked this question to an adult Sunday school class I was teaching a few years ago. Not many hands went up. I didn’t dare to ask how many were tithing (or giving the first 10% of their income away). That seems to be a topic as sensitive as asking about someone’s sex life.  But when I asked who would give more if they won the lottery, all hands went up.  My observation has been that if someone was not giving 10% now, he or she wouldn’t give any more even if they had more.

Stewardship is not based on what you don’t have, but on what you currently do have .

Stewardship is a New Testament concept, whereas tithing is taught in the Old Testament. “…The purpose of tithing is to teach you always to put God first in your lives” (Deuteronomy 14:23 The Living Bible).  The concept of stewardship puts a new perspective on giving.  It takes the “my” out of what I control, and returns ownership back to God.  I only control its use.  The New Testament teaches that “If you are not faithful in the way you manage unrighteous mammon, God will withhold from you true riches which are spiritual blessing.” (Luke 16:11 paraphrased). So how do I apply these principals to my own life?

I established a lifetime giving goal, and a new accounting system .

I keep a financial statement that reflects temporary and permanent assets.  Temporary assets include assets I still control such as real estate and investment accounts.  Permanent assets include what I have already given away to charities that I believe God would spend His money on.  I have much farther to go to meet my lifetime giving goal, but my permanent new worth has finally exceeded my temporary net worth.  Next time you prepare your financial statement, try this new accounting system.  Mother Teresa said, “Everything that is not given is lost.” I wrote a book a number of years ago, “Wealth Conundrum”, if you would like a complimentary copy, please contact our office.

The Relationship between Liquidity and Certainty

Ralph Doudera is the CEO and head portfolio manager of Spectrum Financial. He has been successfully managing money for 44 years and he will never sacrifice liquidity.

When you are a money manager for 44 years, you learn some lessons, sometimes the hard way.

That is why he chose to manage money with mutual funds and not hedge funds. Even with up to 300% leverage at times in his funds, he can be out of everything by end of day. Liquidity is important to Ralph because he has managed money in the worst bear markets since 1973. When you maintain liquidity, you can rotate into more favorable investments, even cash, depending on the market environment. Liquidity becomes your cornerstone for risk management.

Let’s pretend that you knew 2018 was going to be comparable to 1987 or 2008 – total chaos in the domestic and international financial markets.

How important would liquidity be to you?

There is a positive correlation between the certainty of bear markets and the value of liquidity (and risk management in general). Stepping back into reality, we are not certain there will be a bear market in 2018, but there will be a bear market.

Dr. Michael Burry, the hedge fund manager of Scion Capital (played by Christian Bale in the movie The Big Short), was right early, but he still ended up being right.

Actively managed strategies should always make up a percentage of your portfolios.

At a family office conference I attended in July this year, the CIO of a billion-dollar family office asked the attendees why he would sacrifice his liquidity in the private market if he could get a better risk adjusted return in the public market. He wouldn’t. Diversification does not just apply to manager investment philosophies or market sectors. It applies to the types of investment products you use and the managers you choose.

All clients value making money and not losing it. Do not become a complacent buy and hold investor in an extended Bull Market. The markets, when they correct, will not wait for you to adjust. Austin Kiplinger said, “The foundations of future fortunes are laid in bear markets.” Adversity always has a way of sifting the important things to the surface, like risk management and liquidity.

Duration vs. Maturity and Why the Difference Matters

Understanding the complexities of the bond market is important when evaluating the types of products and exposure a portfolio has within the asset classes of fixed income. The terms “duration” and “maturity” differ in the world of finance from their common everyday use. In finance, both duration and maturity refer to different characteristics a bond may have. Clarification of the definitions should help those wishing to dive a little deeper into what may be subtle yet important difference among bonds whether looking at fixed income mutual funds, ETFs, or individual bond issues.

MATURITY

How long something lasts is commonly associated with the word “duration”. An example of this would be a movie with perhaps a duration of two hours or a roller coaster with a duration of one and a half minutes.

When assessing a bond or a bond portfolio, how long the bonds last, if not sold early, is closer to the definition of “maturity”.

A 30-year Treasury Bond, as the name implies, matures or pays back its face value 30 years from its initial date. Investors are not obligated to hold the bond for the entire period as they have the option of being sold within the secondary market.  Therefore, ten years after its initial offering, a 30-year Treasury Bond will have a maturity of twenty years but is still called a “30-year” Treasury Bond.

Individual investors or portfolio managers can buy or sell bond holdings to adjust the average maturity of the portfolio. Why would they want to do that?  Generally speaking, the further out the maturity, the wider the potential price swings of the market value of the bond.  That is a very important concept to bond investors, but it is a general concept as compared to an attempt at better detailing the relationship when we cover duration.

Keep in mind bond investors recognize two types of return, the first is the interest payment income which may be paid quarterly, semi-annually or even annually.  If investing in a fixed-income mutual fund, interest payments are in the form of mutual fund dividends and may be paid monthly.  Those payment cycles will play a role when duration is covered.  The second type of return is from price changes of the bond itself (why maturity matters).  Putting the two types of returns together, an investor gets the “total return”.

Bonds are often quoted with two yields. See the diagram below to understand the relationship between the bond’s price and its interest rate (or coupon rate).

  1. A bond is quoted with its “coupon yield”. This refers to the annual interest payable as a percent of the original face or par value. An 8% bond with a par value of 1000 would receive $80 per year.
      1. Coupon/Interest Rate= 8%
      2. Original face or par value= $1,000
      3. Math= .08(1000)= $80
  2. The second is the “yield to maturity” (YTM). This quote takes into account the amount of years left until the bond matures and the impact the market and secondary trading of the original bond has had on the investors final total return.
    1. Example: 10 years later the original 8% bond with a par value of 1000 is actually trading at $950. Remembering the above diagram, this means the coupon/interest rate would be higher than the original 8%. So what would be the bond’s yield to maturity?
      1. The formula for YTM takes several things into account:
        1.      Original Coupon/Interest Payment (C)
        2.      Original Face or Par Value (F)
        3.      Price bond was purchased (P)
        4.      Years to maturity (n)
    2. If you plug in all the numbers and calculate the YTM when n=20 (10 years later…) the YTM quote is 8.46%
    3. Let’s say that 5 years later, interest rates have dropped and now the bond is purchased in the aftermarket for $1060. The Yield to Maturity is 7.38%

So what’s the bottom line when it comes to maturity?

Other than a few reasons that would cause a bond to end its existence prior to maturity, the life span of a bond tells an investor how long the bond may be exposed to risk – the primary one being the erosion of its value (purchasing power) when inflation is present (higher bond price, and a lower return than the coupon rate as in example 2 on YTM).

DURATION

Plain and simple, duration is the measure of a bond’s sensitivity to changes in interest rates. Complexity increases in the details of various ways duration is calculated.  We will quickly outline the calculations but then then circle back and focus on the broader concept and why investors look at duration in conjunction with maturity.

Macaulay duration, modified duration and effective duration are three types of duration calculations. Investors will more than likely run across effective duration numbers.  It is calculated by taking into account how fast a bond’s initial purchase price will be repaid based on its cash flow – this may be a weighted average if looking at a bond portfolio such as in an ETF or mutual fund.

Despite the fancy math of the different versions, duration is more of a concept and not a tool to measure an exact expected price change of the bond when interest rates change.

So what’s the bottom line when it comes to duration? An example should drive the concept home.

An investor that purchases a bond with a face or par value of $1000 would naturally wonder how much that price could be impacted by changes in interest rates. If a bond has a duration of 6 years, then a 1% change in interest rates should cause the bond to lose approximately 6% (to about $940).  Keep in mind the image of a see-saw on a playground conveying the idea that when interest rates go up, bond prices go down and the opposite is true.

As noted earlier, duration is more of a concept that estimates the impact to the bond when interest rates change. It is an estimation of the amount of up/down swing in that see-saw image.  Ultimately, market participants determine price, but keep in mind market participants would probably be using models to calculate duration in an attempt to determine supply (selling) and demand (buying).

You may have noticed the duration example had the term listed as years. That is the norm used to note duration and also the probable reason why it is can be easily confused with maturity.  Recall that the formula(s) for duration measured how long it took for the cash flows to repay the initial investment.

Now, the bottom line of the bottom line. Two bonds may have the same maturities, but their sensitivity to interest rate changes may be different.  Investors and portfolio managers not only can diversify holdings in regards to when the holdings may expire or mature, but now can diversify holdings in regards to the possible volatility or impacts to bond price movements as interest rates change.

Take high yield bonds for example – according to the iShares website (www.ishares.com), the High Yield Bond ETF (HYG) has a Weighted Average Maturity of 4.15 years and an Effective Duration of 3.59 years.  On the same website, the 3-7 Year Treasury Bond ETF (IEI) has a Weighted Average Maturity of 4.70 years and an Effective Duration of 4.42 years.  Morningstar (www.morningstar.com) lists the Guggenheim Floating Rate Fund (GIFIX) has having an Average Maturity of 5.12 years and an Effective Duration of only 0.27.  The bonds within these portfolios have, on average, a relatively similar period of time until the principal is assumed to be paid as shown by the average maturities.  However, high yield bonds are implied to have greater insulation to changes in interest rates versus the 3-7 year Treasuries.  Floating rate, as the name implies, has the characteristic of periodically adjusting their interest rate payouts making them even less susceptible to rate changes than the other two.  An investor or fund manager may be comparing these potential investments in their due diligence process.  If they have an opinion on the direction and speed of possible interest rate changes, then duration would be an important factor.

Those newer to fixed income assessment often start with seeing the bond market as one entity, perhaps thinking “the bond market was up today…”, etc. That is certainly not the case.  The next step in learning more about fixed income is to see how various classes within the bond market actually differentiate themselves in price direction and volatility.  Maturity and Duration are simply two measures among many that investors explore when attempting to separate the parts that make up the bond market.

 

Phishing Smishing: If you didn’t order it, don’t click on it.

It’s the oldest online scam in your inbox: They send out an official looking e-mail. “Your password has expired,”  “Your account is in arrears,”  “Please verify a charge,” or some emergency that needs you ASAP.  These are the tricks “phishers” use to get you to click 1st and think 2nd. So how do you protect yourself from phishing schemes?

BE WARY OF E-MAILS WITH LINKS YOU DID NOT REQUEST

Very simply–if you see an official looking communication from your bank, credit card, Amazon or any entity, directing you to take action by clicking a link–don’t!  Click it, and the bad guys verify your existence.

COMPANIES DON’T ASK FOR PASSWORDS IN E-MAILS

Hackers are really good at creating phony e-mails that look like the real thing.  The company “will never ask you for your password in an e-mail or send you a password as an attachment.”  The same goes for the IRS, banks and other officials–if you’re under an audit, you’ll be notified by the US mail. You don’t need to sign into an account that’s probably bogus.

HOW TO SPOT A FAKE E-MAIL

Fake e-mails usually look spot on, but there’s often a typo, a mis-spelled word, a contact address that isn’t a google.com or amazon.com , but instead a webmail address. Perhaps you have a Wells Fargo account and get an email from: Wells Fargo Support. Looks legit, but would they use WellsFargoSupport@gmail.com   Not likely!  I have even seen domains registered close to the legitimate such as info@amazzon.com   Just a small misspelling could get your information compromised.

Many times the pages served by these links are not secure. They will show up as http:// instead of secure https:// The S stands for secure, by the way.

WHAT IF A FRIEND SENDS YOU AN E-MAIL WITH JUST A LINK?

Be wary, inspect it, ask the friend what the intent was before agreeing to click on the link. If it doesn’t seem legit, don’t be tempted, just delete it.  If the e-mail is from a company, and you’re addressed as “sir” or “madam” and not by your name, and you’re also asked to fill out a form, the smartest solution–don’t.

SMISHING: MOBILE MAKES IT HARDER

Smishing is a phishing scam that is sent over Short Message Service (SMS) Text message. It’s not just your inbox that they are after anymore.  Most texting fraud is an attempt to get your private information by responding by text.   They often use fear tactics to get you to respond hastily.  In an age where we live on our smart phones, these fraud attempts are smaller, harder to spot, and more frequent, so you’ll need to be that more diligent and take the time for inspection.

HOW TO RESPOND TO A COMPANY WE TRUST?

Google, Facebook, Amazon, Apple and other companies routinely ask us, via an e-mail, to update our passwords when we’ve forgotten them. Their pages look authentic, and they offer e-mails with links when we ask for a reminder. So why should I click their link when they send it to re-set the password? Because you requested it from the company.  If you’re worried and want to play it safe, skip clicking in any email and go straight to your browser. Most company websites let you change your password at their registered .com addresses, by going to the account section and opting for a new password.

Finally, it goes without saying, while I have your attention, that this is a great time to update your passwords with hacker proof collections of numbers, symbols, upper and lower-case letters. Stay away from hacker favorites like “password,” 123456″ the name of your street, default, or your pet’s name.

Long passwords from a pass phrase work well. “JimwasmyfavoriteCollegePal1” is an example of a strong password.  There are secure password manager programs such as Roboform, https://www.roboform.com/ that can also securely help you keep track of your passwords.

WHAT TO DO IF I GET IN TROUBLE?

Always act quickly when you come face to face with a potential fraud, especially if you’ve lost money or believe your identity has been stolen.

FBI – If a phishing scam rolls into your email box, be sure to tell the company right away. You can also report the scam to the FBI’s Internet Fraud Complaint Center at https://www.ic3.gov/

SEC – If the email purports to come from the Securities and Exchange Commission, alert the SEC by submitting a tip online at https://denebleo.sec.gov/TCRExternal/disclaimer.xhtml

FTC– If you think that your personal information has been stolen, visit the Federal Trade Commission’s feature on Identity Theft at www.consumer.ftc.gov/features/feature-0014-identity-theft for information on how to control the damage.

High Yield Returns When Yield Spreads Are Low

This blog is taken from our January 2017 newsletter discussing yield spreads.

High Yield Returns

The yield differential between high yield bonds and US government bonds is currently only about 3.8%. This indicates that the yield on high yield bonds is paying 6.3%, where 10year government bonds only yield 2.5%.

A normal range for this yield spread is between 3% and 7%.  The lower this number is, the lower the potential returns are.

Looking at what happened in 2004, when we were midway in an economic expansion and the yield spreads were about where they are today, these charts illustrate the returns for the three years following this similar economic period. Total returns for the next few years averaged about 8.5% annually for high yield bonds. If the yield spread continues to drop, high yield bonds should continue to appreciate, but if this spread drops below 3%, a defensive strategy is likely.  Currently the yield spread is 3.33%

*The CSFB High Yield Index is designed to mirror the investible universe of the $US-denominated high yield debt market.

 

Why Use Leverage?

 

Leverage is a tool that most people use on a daily basis without the knowledge they are even using it. Think of a home mortgage, this is leverage. A person is able to put down 15-20% the actual cost of the home and borrow the remainder. That person has now leveraged their money 4-5 times beyond its normal purchasing power.

Spectrum uses leverage in some of our SMA accounts and sub-advised mutual funds to borrow money or increase exposure to potentially increase potential returns when our proprietary models indicate risk is lower and trends are established. Below is a graph showing a sampling of these periods.


Managing high yield bonds has been Spectrum’s core investment strategy since offering investment management services in 1988. We have seen about every scenario possible—war, the great recession, over- and under-valuation, and have had experience in all of them. We understand bonds, and consider them predictable, since we have observed them for over 10,000 days. If we can borrow money at 2% and purchase bonds that yield 7%, we can make a net gain of 5% in addition to the 7% bond yield. This is called “carry trade”. However, we need to have liquidity to exit these positions when they are no longer in an uptrend. Since all the funds we use have daily liquidity, we can use this strategy when appropriate without having to ride out a serious decline. So our philosophy is simply; there are times when it is good to own them, good to stand aside, and even times to consider borrowing money to own more for short periods of time when “the wind is at your back”.

Give me your Credit Card

Most of us do some shopping online. Some of us a lot! So how can we stay safe with using our credit card for all those purchases? Here are a few tips that go a long way toward protecting your assets while taking care of business:

Only shop at sites you know and trust. Most of the problems come from sites that are just a little off the beaten path. That “Unbeatable Deal!” might be a trick to steal your credit card info. But, large well-known sites are seldom a problem.

Credit is safer than Debit. Credit cards have some built-in protection like a limit on your liability. It can be as low as $50 or even zero-liability. Debit cards do not have this same protection.

Secure sites. A secure site encrypts your credit information so it can’t be stolen. Look in the website address for the extra “s” near the beginning. “https”. This means that the site is secure. It doesn’t mean that your 100% safe, but it helps a lot.

PayPal. Is PayPal safe? Absolutely. It may be safer than your credit card because it has powerful fraud and consumer protections in place. If you use PayPal, it’s best to link it to your credit card, not your bank account. This way you’ll also gain the extra layer of protection that your credit card provides. Double protection!

Protect your social. Never give out your social security number for a purchase. It’s never needed for an online transaction. If they ask for it or for more info than is needed for the transaction, cancel the purchase and run.

Review your transactions regularly. Small unfamiliar charges that show up on your bank statement could be a test from a hacker, and can give them the green light to larger fraudulent charges.

Stay Private. Don’t do online transactions on public computers or Wi-Fi. Your credentials could be saved or hacked. This could lead to identity theft or fraudulent credit card charges.

Rising Interest Rate Risk

Spectrum continues to get many questions about investing in bonds in a rising interest rate environment.

The study below shows an updated chart illustrating every period of rising government bond rates for four or more quarters since 1982. These results show that while government bonds can have loses due to interest rate risk, high yield bonds can have gains.

The CSFB High Yield Index (CSHY) is designed to mirror the investible universe of the $US-denominated high yield debt market. *Data obtained from Bloomberg.

The primary reason for this is that interest rates generally increase when economic indicators are improving, causing government bond prices to go down. However, an improving economy reduces the risk of owning high yield bonds because they should strengthen as their credit rating improves. High yield bonds act more like stocks than bonds in a favorable economic environment. This is consistent with the Federal Reserve’s commitment to keep rates low until the economy is stronger.

We believe high yield bonds should have more room to continue to be profitable in any case.

An impending recession would provide reason to reduce high yield bond exposure due to the fact that risk of default is high. By moving to a cash position when a recession becomes likely, we will be in a position to reinvest the funds and take advantage of a purchase at much lower prices. Currently high yield bonds offer a yield of 3.6% more than government bonds.

This writing is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation regarding any securities transaction, or as an offer to provide advisory or other services by Spectrum Financial, Inc. in any jurisdiction in which such offer, solicitation, purchase or sale would be unlawful under the securities laws of such jurisdiction. The information contained in this writing should not be construed as financial or investment advice on any subject matter. Spectrum Financial, Inc. expressly disclaims all liability in respect to actions taken based on any or all of the information on this writing.  For full disclosure please see disclosures page here.

 

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