Blog

First Quarter 2016 Market Update

First Quarter 2016 Market Update

The first quarter of 2016 offered a roller coaster ride for investors. To start off the year, the general stock market found itself down almost 11% by February 11th. This unprecedented level of volatility continued and by March 31st the market had regained all lost ground and closed the quarter slightly positive. For the first three months of 2016, the S&P 500 and Dow Jones Industrial Average gained 0.77% and 1.44% respectively, while the NASDAQ Composite declined by -2.75%*.

This whiplash market rebound, despite all the headlines, is impressive, if not amazing. Although the ups and downs may make investors nervous, the key to any investor’s success is stamina and patience. While we realize it was a tough quarter, we are pleased that everyone under our guidance benefitted because of remaining steadfast to our recommended investment allocation program designed to compliment to your overall Life Plan.

Let’s briefly review the primary elements that weighed on the stock market these past few months and caused such volatility:

Crude Oil

Over the past nine months, the price of oil has plummeted over 70% from its peak in 2014 of $110 a barrel. This downward trend exposed a price bubble and sparked widespread fears of geopolitical uncertainty and possible global recession. Since mid-February, however, the price of oil has rebounded 60% yet, U.S. oil production is on pace to decline approximately 10% from last year’s peak.  What caused the declining trend, as illustrated in the graph?  An agreement between Russia and Saudi Arabia in early February to temporarily freeze production is causing these leading oil-producing regions to utilize stored supply resources instead of continuing production.

One key to any sale or oil production discussion will be Iran’s ability to sell crude on the open markets later this summer. Currently, Iran is producing 1.7 million barrels per day, up by 600,000 barrels from the end of 2015, in anticipation of this selling fortune. This will most certainly have an effect on the overall oil markets; particularly affecting the future production levels of most oil producing countries such as the U.S., Russia, and Saudi Arabia.

As a result, dividend cuts and bankruptcies continue to surge in the energy sector, which once was a leading contributor to global economic growth. For the next year, the U.S. economy cannot rely on energy as a sector for generous growth. Unlike the past, however, banks planned for this possible slowdown and have adequate capital reserves to manage the exposure. As part of your allocation or general Life Plan, we are not recommending any concentration in energy or commodity investments.

China

The economy of China continues to be a main focus for investors worldwide. At the start of 2016, the global stock markets questioned China’s stability and steadfast positive (high level) economic growth. As we have witnessed in August 2015, markets sold off to start 2016, a theme which was carried into February; providing historic levels of volatility never experienced by the U.S. markets since their inception in the late 1800’s. At the start of 2016, China attempted to normalize its economy and markets by adopting similar stock market governance as the U.S. (organizations such as the SEC, etc.). These laws were met by significant resistance, causing the Chinese to rethink this legislation and temporarily hold off on adopting such governance.

Since the start of the year, China’s foreign reserves have stabilized, helping to lift the Chinese currency – the Yuan. Our evaluation of economic data suggests that China is increasing exports, providing stability to its market. This, at least for now, has helped China avoid any short term economic trouble. As China transitions to a slower growing, more consumer-based economy, the communist regime may have lost its ultimate control. Should the data continue to indicate a successful soft landing, this would be a considerable catalyst for global markets.  At this point, we are not recommending any investment exposure to China or any other Asian market; yet will continue to monitor for possible investment opportunities. A key element to watch for is whether China will decrease its substantial purchase of U.S. Treasuries in favor of reinvestment within its own borders. This could provide significant investment gain in the Asian markets, particularly those connected to China by supplying labor and natural resources.

U.S. Federal Reserve (FED)

The most significant game-changer at 2015 year end was the U.S. FED’s increase in federal funds rates by 0.25%. This was probably the key contributor to the recent level of stock market volatility. Many experts felt this increase was long overdue but undercut the true health of the U.S. economy. After the dust settled in mid-March, the Fed further communicated a dovish tone that and helped catapult markets off the quarter lows. Janet Yellen stressed that the the Federal Reserve had softened its previously expected path for interest rate hikes – despite full employment and higher inflation levels. The Fed has essentially bowed to global economic concerns and political pressure, helping to reignite the market’s robust short-term spirits in positive growth. The Fed’s maneuver halted the extended positive currency valuation of U.S. dollar, which led to its greatest two-day decline in seven years. As the valuation eases lower, there are multiple benefits that have given credence to the Fed’s earlier mid-March communication. First, since the Chinese Yuan is pegged mostly to the U.S. dollar, the weakening has eased pressure on the Chinese government to further devalue its currency. Second, given the inverse relationship of oil (priced in dollars) and the dollar, the dramatic drop has given oil a boost just as prices decline in energy. Finally,(as shown in the graph) with approximately 50% of S&P 500 index company revenues derived from sales outside the United States, the weakening dollar should offer a much-needed springboard to reported earnings for U.S. multinationals. Monetary policy headwinds have come at an important and much needed time for U.S. stock market investors.

Future Outlook for U.S. Investments

At today’s levels, the S&P 500 index, a common barometer for stock market investors, is trading only 3% away from the 2,150 high experienced last spring. Our economic experts predict the general markets will not surpass this 2,150 range during 2016. Therefore, while stocks are not trading at bargain prices, we must consider the reality of the current political and economic landscape and the absolute pressure U.S. Companies face by factors outside of their control. Yes, this is a political year and likely one for the record books. As no one can predict the future direction of leadership in the U.S. government, the game of “hot potato” has certainly been entertaining to watch.

The lack of consistency has led us to set reasonable expectations for stock market investments for the remainder of 2016. However, in addition to possible gains for 2016, an investor cannot forget the potential dividends generated from stock investments. Presently, a majority, if not all of our recommended stock investments pay dividends, some two times higher than a traditional bond investments. As we cannot guarantee price consistency, we can evaluate the potential of higher income payments as part of an overall Life Plan. These payments are key when you need income or relative consistency from your investment portfolio.

Recommendations for Remainder of 2016

In a world where the Japanese and European Central Banks experiment with negative interest rates – you pay the government and receive less in return – we are forced to look outside  traditional stock and bond investments for portfolio income, stability and growth. We cannot consider CDs and cash investments as good alternatives for portfolio income or reasonable rate of return. Therefore, after a year of review and due diligence, we may recommend exposure to investments in real estate for your investment portfolio.

We have the fiduciary responsibility to recommend investments that are consistent with your Life Plan as well as adhere to your risk tolerance and give unbiased advice that is free from commission incentives. In the past, REITs (real estate investment trusts) were a good solution for portfolio income and possible long-term growth. REIT managers currently have a difficult time of finding good assets priced at reasonable levels that also provide adequate income. Further, the management expenses charged by REIT managers have risen significantly. To meet our demand, we’ve partnered with several real estate developers who have potential investment solutions for our clientele. These opportunities are unique and we will need to thoroughly review them with you as it relates to your overall Life Plan. The potential annual income generated from these opportunities over the long term (3-7 years) is upwards of 8.5% annually with potential for appreciation. Over the course of the next quarter, we will meet and may consider these investment opportunities. In the meantime, keep this statistic in mind:

“As of the end of 2015, there were 117.8 million households in the United States, split 64/36 between homeowners (75.2 million) and renters (42.6 million). Since the end of 2011 (i.e., 4 years earlier), the number of homeowners (75.3 million as of 12/31/11) has declined by 100,000 while the number of renters (38.8 million as of 12/31/11) has increased by +3.8 million (source: Census Bureau).”

Changes to Our Firm and Industry

Lastly, as the Department of Labor wrestled with creating a uniform fiduciary standard for financial advisors, we too had to evaluate our present relationships and determine a future plan of success for you and our Firm. Our broker/dealer, Cambridge Investment Research, a Firm that once was a necessity to bring your investments to the market, has significantly changed. They became very directional and we felt a constant push to recommend annuity and high-commissioned investments that did not meet our Life Planning approach. We decided to  separate from this organization at year-end. We welcome this change, but we can’t help but think that you may feel some uncertainty. Therefore, here are a few points to consider about our firm:

1. We are a “fee-only” financial advisor and do not charge commissions. We charge clients one fee for investment management and financial planning.

2. We are not linked to a bank, therefore Charles Schwab, our current partner may offer banking solutions that pay commissions, yet we do not receive any part of those commissions.

3. Any recommended asset is carefully considered as part of our Firm’s customized due diligence standard.

4. In our Firm, we have resources with expertise in financial planning – (CFP®), tax- EA/CPA, insurance – CLU, law – JD, investment management.  All of which are dedicated to you through salaried relationships.  

This new fiduciary rule builds on accountability measures, rooted perhaps in the Golden Rule, that evolved under industry guidelines to the Prudent Man Rule (founded by a Firm I once worked at – Putnam Investments) Financial advice is so important and integral to a successful Life Plan.  It is our goal to work and grow alongside you, our clients. Good financial advice is needed now more than ever.

New Beginnings

The Mason Family welcomed a new addition – Ryan Thomas Mason, born on April 3 to parents Thomas and Jamie. This growing family is home, barely sleeping, but enjoying the newest member. Grandparents, Uncle Brent and Aunt Leah, as well as cousins Alexandra (6), Zachary (4) and Samantha (2) are all happy to play with this little miracle.

In addition to “RT” joining our family, we welcomed Greg Jones to the Firm’s investment management team. Greg recently received his MBA in business from Peking University in Beijing, China. Greg brings additional knowledge and resources to our investment management team and your investment portfolio. Welcome Greg!

Lastly, we want to thank everyone for their well wishes after the passing of our friend and colleague, Naomi Nagy. Naomi’s presence is felt in our firm daily. Her two dogs are missing her but living with Sheryl, her daughter. Continued prayers for them and all who suffer from cancer.

Have an enjoyable Spring and please feel free to contact me or any team member with questions or comments you may have. We thank you for your continued trust and friendship.

Regards,

Brent M. Mason

*Indices mentioned are unmanaged and cannot be invested into directly.  Past performances are no guarantee for future results.

**Graphs provided by JP Morgan Asset Management, 1st Quarter Economic Commentary Review.

We value our clients’ privacy. You may obtain a copy of our privacy policy anytime by emailing This email address is being protected from spambots. You need JavaScript enabled to view it. . Pursuant to Federal Securities Law, we wish to inform you that a copy of our current written disclosure document (Form ADV Part II) is available for your review. If you would like us to mail you a copy, please contact us in writing at the above address or call us at (888) 988-4015. We have included a copy of our Firm’s Privacy Policy for your records. You can obtain a copy at:

/images/Mason_Privacy_Statement.pdf

Pursuant to Federal Securities Law, we wish to inform you that a copy of our current written disclosure document (Form ADV Part II) is available for your review. If you would like us to mail you a copy, please contact us in writing at the above address or call us at (888) 988-4015. The following is a summary of material changes made to our ADV Part II:

  • Minimum account size is $500,000. Minimum annual fee is therefore $6,250.
  • Correction was made under Other Industry Affiliations and Activities to read: Mason & Associates is not registered as a securities broker-dealer, or a futures commission merchant, commodity pool operator or commodity trading advisor.
  • E mail address for purposes of obtaining additional information from Mason & Associates is changed to This email address is being protected from spambots. You need JavaScript enabled to view it. .
  • Assets under management figure has been stated as of December 31, 2015 at $230.8 million.
A Market Correction is an Opportunity
The Department of Labor Ruling and the Importance ...

7474 North Figueroa Street
Los Angeles, CA 90041

Phone: 323.254.3072
Toll Free: 888.988.401K
Fax: 323.395.0714

Members Of