2015 Annual Smattering of Thoughts

January 16, 2016

Cheers! Welcome to 2016!

Winter is Coming!      

Oh wait, it is here in full swing in West Texas.  I can’t help but to begin this Annual Review by mentioning the Great Texas Blizzard of December 2015.  This winter weather system was an incredible act of nature.  We would have to go back to the mid- 50s to recall such a historic snowfall and technical definition of “blizzard” conditions.  All across the Texas South Plains snow estimates ranged from 2 to 20 inches of snow, with snowdrifts ranging from 3 ft. to 15 ft. in many places.  As anticipated, many members of the community came together to volunteer their equipment and provide assistance to help dig out the surrounding communities.  It was much appreciated!

To some across the country it may seem that “Winter Storm Goliath” was no big deal.  I offer this snowfall graphic for perspective.  It was a massive snowstorm— if you live here you already knew that!


I also offer a link to a blog post called ‘Blizzards and Bullsh*t’ by blogger Dairy Carrie—I won’t apologize for the language, most of us read far worse on social media platforms.  Her blog post provides in graphic detail the devastation cattle ranchers are currently facing and how challenging life can be for both dairy farmers and cattle ranchers.  She also addresses a few asinine concerns animal activists have about why cattle are not all raised in barns.  It’s an interesting and colorful post.   Recent estimates indicate 30,000 head of cattle have been lost due to the winter storm.

Blog link:  http://dairycarrie.com/2015/12/30/winter-storm-goliath/#comments

Winter Wonderland in Texas      

As for my family and I, we were glad to be able to enjoy the snowfall.  Here’s a few pictures that captured our winter wonderland experiences in Texas.

del hickory st snow

My daughter standing in the middle of Hickory Street in Levelland, TX.

car hood snow sledding 2015

We captured this picture of a guy sledding on a car hood on Hickory St.

ski apache jan 2015 Not Lake Tahoe, Aspen or Telluride…Ski Apache, NM, an 85” snow base.  Best snow I’ve ever experienced at Ski Apache!

Update On Oil Prices—Who Knows?                                                                                   

A noted junk bond manager recently quipped that “there’s nothing intelligent to say about the future price of oil.”  There’s much more to this context but I mostly agree. I’m eating my words from this time last year when I mentioned that the oil price decline would be a powerful shot in the arm for global growth—my goodness.  I will avoid a folly opinion and point to a graphic highlighting what I hope is more interesting and important to disciplined investors.

Bubble graphic bloomberg 2015

Asset bubbles real or perceived should not be a reason for avoiding the stock market altogether.  As one market segment tanks, others will do well. For long-term, highly diversified, disciplined investors, “bubbles” don’t matter.  The danger occurs when you concentrate risk and put too much emphasis on a particular asset class or market sector.  You will never know when a “bubble” will burst. If you recall the recent Oil Bubble Bust came early last fall with no warning, for no particular rhyme or reason.  This is of course coming from an investment standpoint. If you are employed by the oil industry, your focus is maintaining employment, and I empathize.

Venerable or Vulnerable Vanguard, Accusations of a Tax Evasion Scheme

I first read about this whistleblower lawsuit against Vanguard in August of 2014, I found it very curious and eagerly waited for more details.  Surprisingly, this story has not caught the attention of others in the very opinionated advisory community.  Personally, I find these allegations against Vanguard the most interesting topic of personal finance in all of 2015.

I would not describe myself as a “boglehead,”—a term that is used to describe a devotee to Vanguard’s approach to investing based on the name of John Bogle, the founder of Vanguard.  Though, I do have a healthy respect for the world’s largest mutual fund company.  In fact, within the firm we do often recommend Vanguard funds and our family owns a couple Vanguard funds.

Essentially, about 2 years ago, David Danon, a former Vanguard tax attorney (the whistleblower) filed formal complaints with the Internal Revenue Service and other state taxing agencies claiming that Vanguard’s low fees are an illegal tax scheme.  He lays out an argument that Vanguard should have charged investors almost $20 billion in investment management fees and claims that Vanguard owes around $35 billion in taxes, interest and penalties going back to 2007.  In the details of his whistleblower allegations, he cites IRS Code Section 482 that requires transactions between related companies to take place at the same price as if the companies were unrelated.  Mr. Danon believes that Vanguard provides services to its mutual funds/related entities at “artificially low, at-cost” prices, skirting accepted U.S. tax law.   Because of its unique business structure, Vanguard shows little to no profit despite managing nearly $3 trillion in assets.  Mr. Danon asserts that Vanguard’s business structure enables the company to underprice competitors to gain an unfair advantage and its dominance in the industry is related to tax evasion.  These allegations are incredible to say the least!

There does seem to be a bit of merit to the case and the allegations, as other states have been reviewing Vanguard’s financial reporting.  Texas was the first state to reach a settlement with Vanguard over back taxes. It marks the first payout from Mr. Danon’s contention that Vanguard has not been forthcoming with its accounting between entities—though Vanguard claims the settlement is from a routine tax audit.   In news reports it does appear that Mr. Danon was able to receive whistleblower compensation for the Texas settlement.

So what does this ultimately mean for Vanguard mutual fund investors? It’s still too early to know for sure, there are many complexities.  If the IRS decides to get involved and settlements are reached, mutual fund expense ratios could go nominally higher, as hefty amounts of taxes could be owed. Vanguard is an enviable and mighty competitor in the investment management industry.  In 2015, it raked in $76 billion in new cash from investors. The company has a large mark on its back and I anticipate taxing authorities and competitors will all want a piece of Vanguard’s perceived troubles.

Link to a white paper abstract from Reuven S. Avi-Yonah, University of Michigan Law School – Too Big to Tax?  Vanguard and the Arm’s Length Standard http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2666426

A New Year Brings New Speculation        

In this last section, I will repost the thoughts of Jim Parker of Dimensional Fund Advisors.  As you will read, Jim highlights the folly of financial predictions.  We all have thoughts and opinions about what could be.  Jim lists 10 predictions you can count on coming true in 2016.

2016: Ten Predictions to Count On              

By Jim Parker, of Dimensional Fund Advisors

The New Year is a customary time to speculate. In a digital age, when past forecasts are available online, market and media professionals find it harder to hide their blushes when their financial predictions go awry. But there are ways around that.

The ignominy that goes with making bold forecasts was highlighted in a recent newspaper article, which listed many bad calls US economists had made about 2015. These included getting the timing of the Federal Reserve’s interest rate increase wrong, incorrectly calling for a rise in long-term bond yields, and assuming an end to the commodity rout.1

For the broad US equity market, 22 strategists polled by the Wall Street Journal2 estimated an average increase for the S&P 500 of 8.2% for 2015. The most optimistic individual forecast was for a rise of 14%. The least optimistic was 2%. No one picked a fall. As it turned out, the benchmark ended marginally lower for the year.

In the UK, a poll of 49 fund managers, traders, and strategists published in early January 2015 forecast that the FTSE 100 index would be at 6,800 by midyear and 7,000 points by year-end. As it turned out, the FTSE surpassed that year-end target by late April to hit a record high of 7,103 before retracing to 6,242 by year-end.3

Australian economists were little better. The consensus view, according to a January 2015 Fairfax Media poll, was that local official interest rates would stay on hold all year. The Reserve Bank of Australia proved that wrong a month later, before cutting rates again in May.

It shouldn’t be a surprise that if economists can’t get the broad variables right, it must be tough for stock analysts to pick winners. Even a stock like Apple, which for so many years surprised on the upside, disappointed some forecasters last year with a 4.6% decline.4

In Australia, the “Top Picks for 2015” published by one media outlet a year ago included such names as Woodside Petroleum, BHP Billiton, Origin Energy, and Slater & Gordon, all of which suffered double-digit losses in the past year.5

It should be evident by now that setting your investment course based on someone’s stock picks or expectations for interest rates, the economy, or currencies is not a viable way of building wealth in the long term. Markets have a way of confounding your expectations. So a better option is to stay broadly diversified and, with the help of an advisor, set an asset allocation that matches your own risk appetite, goals, and circumstances.

Of course, this approach doesn’t stop you or anyone else from having or expressing an opinion about the future. We are all free to speculate about what might happen in the economy and markets. The danger comes when you base your investment strategy on such opinions. In the meantime, if you insist on following forecasts, here is a list of 10 predictions you can count on coming true in 2016:

  1. Markets will go up some of the time and down some of the time.
  2. There will be unexpected news. Some of this will move prices.
  3. Acres of newsprint will be devoted to the likely path of interest rates.
  4. Acres more will speculate on China’s growth outlook.
  5. TV pundits will frequently and loudly debate short-term market direction.
  6. Some economies will strengthen. Others will weaken. These change year to year.
  7. Some companies will prosper. Others will falter. These change year to year.
  8. Parts of your portfolio will do better than other parts. We don’t know which.
  9. A new book will say the rules no longer work and everything has changed.
  10. Another new book will say nothing has really changed and the old rules still apply.

You can see from that list that if forecasts are so hard to get right, you are better off keeping them as generic as possible. Like a weather forecaster predicting wind, hail, heat, and cold over a single day, your audience should prepare themselves for all climates.

The future is always uncertain. There are always unexpected events. Some will turn out worse than you expect; others will turn out better. The only sustainable approach to that uncertainty is to focus on what you can control.

In the meantime, let me wish a happy new year to you all.

  1. 1. Malcolm Maiden, “The Year Market Economists Failed to See Coming,” SMH, December 30, 2015.
    2. “Strategists Expect Stocks to Keep Climbing in 2015,” Wall Street Journal, January 2, 2015.
    3. “Five Fund Strategies to Ride Rising Markets,” The Times, January 3, 2015.
    4. “Seven Stocks to Buy for 2015,” CNN Money, December 31, 2014.
    5. “Top Stock Picks for 2015,” Motley Fool.


I look forward to visiting with you in 2016.  Be ready to hang on to your hat, 2016 is already interesting.


Matthew D. Peck

Client Advisor & Partner                                                                                                                    Amicus Financial Advisors, LLC





Posted in 403b, Lubbock,TX, retirement planning, Texas Tech, Uncategorized | Tagged , , , , , | Leave a comment

2014 Year-End Review

Dear Clients and Friends,

As of this writing we duly note the following:

  • Oil price declines are providing relief at the pump for consumers but anxiety for the local and global Oil Patch. Bargains in some domestic Oil Patch names are beginning to emerge as these stocks approach multi-year lows.
  • A wide, multi-year dispersion of returns, especially between U.S. Large Cap and International Stocks—perspective is in order.
  • FOMO risk – the risk that comes from the excessive fear of missing out.

Happy New Year! 

What a stressful but productive year for the economy and U.S. stock market.  There are no shortages of headline events that would “normally” rattle the markets.  This is U.S. resiliency at its best.  To describe the year 2014 with a pun, my literary description would be that the U.S. economy is acting like—a rebel with a cause, when compared to the rest of the world.  The U.S. economy is in recovery mode with quarterly GDP estimates continually being revised upward.  While this is a lagging economic indicator, these are steps in the right direction.  Other areas signaling positive economic growth are car and truck sales, and for what it’s worth the end of Federal Reserve stimulus via quantitative easing.  To move forward in 2015 and beyond, middle-class wage growth and a more confident global consumer will be required to fuel economic growth and to support higher asset prices.

Oil Patch Pain

The precipitous decline in the price of oil was largely unforeseen and I don’t see any “experts” that will be able to successfully call the bottom in this troubling commodity price decline.  What I do see is an instant increase of disposable income for consumers.  Oil price declines are providing relief at the pump and a jingle in the pocket of consumers.  If the price of oil stabilizes in the coming months, it would provide a powerful “shot in the arm” to global growth—a viewpoint that is currently being underestimated.  Lower oil prices would provide a market-based, natural economic stimulus rather than the faux-stimulus that the global central banks provide in the form of interest rate cuts in an already low-interest rate environment.

Wide Dispersion of Returns—U.S. Large Cap vs. Global Equities

In reviewing asset class performance, it’s painfully noticeable that global equities (particularly emerging markets) have substantially underperformed the U.S. markets for years now.  I offer this empathetic reminder that your portfolio is properly diversified when there’s a portion of it that causes grief or frustration.  Rather than focus on the grief in your portfolio, recognize that periods of over- and underperformance are normal when investing in a globally diversified portfolio.  Performance will shift when you least expect it.  Using the MSCI EAFE Index as a historical gauge, these periods of underperformance last about 5 years—going back to 1970, when the index was introduced.  The idea is to have time in an asset class and not to market time (trade frequently) an asset class.  We are long-term investors in global stocks.

Benchmark Indexes                           5-Year, Average Returns through 2014

S&P 500 Index                                                                                   14.59

MSCI EAFE                                                                                          4.29

MSCI World Ex-US                                                                            4.16

MSCI Emerging Mkt USD                                                                -1.51

Source:  Morningstar

FOMO Risk—Fear of Missing Out

A respected investment manager that I follow, Howard Marks of Oaktree Capital Management, describes FOMO risk as “the risk that comes from the excessive fear of missing out” on investment opportunities.  This fear is a risk factor because it leads investors to do the following: to take more risk than necessary, to invest in securities they don’t understand, and to chase investment returns (to buy high, rather than to buy low) at inopportune times.  I caution folks to be mindful of this as U.S. markets reach multi-year highs.  Don’t invest because you feel like you have missed out, invest because there is an ultimate goal to achieve further down the road.

We look forward to visiting with you in 2015.  Thank you for your trust and confidence.

Peace and Prosperity,

Matthew D. Peck

Client Advisor & Co-Managing Member

Amicus Financial Advisors, LLC

Posted in Lubbock,TX, retirement planning, Texas Tech, Uncategorized | Tagged , , | Leave a comment

A Smattering of Thoughts

thinking-about-money-prev1234724933h9X17PToday, rather than select a single topic, I thought I might provide several glimpses into the way I view the investment world.  It is the way I keep up with investment managers and it is also a partial introduction into how I/we conduct our ever-continuing due diligence process.  This is how new ideas are generated or are thrown out, it is also how I keep myself entertained with some really dry topics.  In the end, it is really a smattering of thoughts (comments) on graphs and pictures that I have gathered over the past several years from others in the financial world that I respect.  This post is contrarian, it shows my bias, but mostly I hope that readers can relate, have a laugh and learn about the market and economics.

Royce pic

An Illustration from Royce and Associates – Chuck Royce & Whitney George, Semiannual Review & Report, June 30, 2012

I thought the illustration above was comical as most of the manager meetings and investment roadshows I have attended over the past few months all echoed the same sentiment.  In many ways it was as if they were all reading from the same script and cringing from hearing the same headlines but in a different year!  The only items missing from this sketch are the issues of the Fiscal Cliff and the end of the Mayan calendar.  Pictured in the illustration are Chuck Royce and Whitney George both small cap investment managers whom I greatly respect.  Firm founder, Mr. Royce is credited with being a pioneer of small-cap investing.

Loathing & Mistrust On Wall Street

The graph below is self-explanatory, but I find it credible and very telling.  The reason is simple: investors of all types (especially those close to retirement) want answers to their questions, not sales pitches and not claims about how prestigious or superior a particular firm is over another.   The damage to Wall Street is evident.  Consider the numerous ad campaigns on TV and notice all the banner ads on the internet that portray how great their firms’ services are.  I do not blame these firms for trying to restore faith and confidence in their tarnished brands.   The truth is that the best talent at Wall Street firms is leaving in droves and so are the clients.  Thank you Wall Street, it’s been a good year!

On the subject of trust, how do you truly know if you are receiving real financial advice?  In my opinion, financial advice is not found by calling a call center or using neat financial calculators on a financial provider’s website.  Fundamentally, it is based on a personal relationship.  Furthermore, true financial advice is paid for, the summary of services to be provided is outlined in a written contract, compensation is disclosed to a client and a fiduciary commitment is understood by the client.  In other words, the interests of the client are put ahead of an advisor’s own interest—to the utmost extent, conflicts of interest must be eliminated.  By default, most financial representatives at most name-brand financial service providers DO NOT put the interests of their clients first. They simply provide guidelines and legalese on the product being sold to you and imply that the product is suitable to your needs.   Think of the pharmaceutical company commercials and their health warnings at the end of the commercial.  Would you take a medication based on the recommendation of a pharmaceutical sales representative or the recommendation of a practicing, licensed physician?  My point is that a buyer must be aware of pseudo-investment advice, the kind that comes with the sale of a financial product.    A financial provider’s purpose is to make money for the company, not necessarily the investor.

TIAA Cref Financial Advice graph

Source:  TIAA-CREF Financial Advice Survey, October 25, 2012


It is popular to hate on Wall Street and Big Business.  In many cases rightfully so, as Wall Street and Big Business have mastered the art of the “neither admit nor deny” settlement on federal regulatory charges:  through legal maneuvering, firms are manipulating the justice system and regulators.  Lately, though, federal judges are pushing back on finalizing proposed settlements.  They are ordering the regulatory agencies and the defendants to justify the need to approve any proposed settlement when there is no admission of any wrongdoing or facts to judge whether a particular negotiated deal is fair, adequate and in the interest of the public.  It makes sense to me.

For example:

A civil settlement with Bank of America announced by the Department of Justice on December 21, 2011 in which Bank of America agreed to pay $335 million in a fair-lending settlement concerning Countrywide’s loan practices where the settlement documents provided that “the Defendants deny all of the allegations and claims of a pattern or practice of discrimination in violation of the FHA and ECOA as set forth in the United States’ Complaint.”

A settlement with Facebook announced by the FTC on November 29, 2011 in which Facebook agreed to settle charges that it “deceived consumers by failing to keep privacy promises” where the settlement documents provide that “Respondent expressly denies the allegations set forth in the complaint, except for the jurisdictional facts.”

It is the SEC’s position that the “neither admit nor deny” settlements are perhaps the only way to get the firms to settle fraud charges.  For if the firms were to admit wrongdoing, it would open them up to civil damages.  I am all but certain many financial firms would face civil lawsuits whether or not a federal regulator was in involved in a previous legal dispute.  Recently, though,  the SEC had to revise its “neither admit nor deny” policy and not allow the practice in situations where the SEC settled civil fraud charges, while almost simultaneously the Justice Department were settling criminal charges, an interesting contradiction.

Testimony on “Examining the Settlement Practices of U.S. Financial Regulators” http://www.sec.gov/news/testimony/2012/ts051712rk.htm

Frequency of Outpacing Inflation

This graph illustrates how cash rarely exceeds the rate of inflation in the long run.  This is a fact for CD investors to think about as they are getting fleeced by the Fed and their ZIRP (zero interest rate policy) decisions.  Here’s the translation:  savers are being penalized, speculators are being rewarded.    With a “high-yielding” 5- year Certificate of Depression, you can earn around 1.80%.  At that interest rate, it will take you around 40 years to double your money.  Notice what asset classes do outpace inflation…everything your banker owns in the bank’s own investment portfolio.  Cash is not always king!  If you are going to make money, your capital must be at risk and be able to outpace inflation.

Fidelity inflation

Chinese Tier Cities

Our Chinese trading partners have a system of classification of cities into tiers, and it is not an exact science, but nonetheless is interesting.  Tier 1 cities in China are the mega-cities such as Beijing, Shanghai, Shenzhen and Guangzhou. The Tier 2 cities include mostly the provincial capital cities, the likes of Zhengzhou, Harbin, Changsha and Xi’an.   The graph below illustrates Chinese cities and Western equivalent cities.

Chinese cities

To give you a perspective, all of the Chinese cities listed above are in one province—the Sichuan Province!  Now you can begin to fathom the investment opportunities that lie ahead in China and across Asia as a Western-style of economic consumption continues to spread.  If you have not done so, you should consider embracing Asia as a long-term investment theme—our clients have had direct exposure to Asia for years now.

This graph may bring back a bad memory of record high mortgage/interest rates if you happen to have purchased a home in the early 80s.  Recently, the chart below has come back full circle in our family as my wife and I recently purchased my childhood home from my parents.  As we looked for the deed of trust for the home, I found my parent’s original mortgage application—their stated 30 year mortgage rate was 13.5%.  By stark contrast, our 30 year mortgage rate is a lowly 3.75%.  It is the contention of the bond king himself, Mr. Bill Gross of PIMCO, that the cost of cheap money (low interest rates) has permanently altered the outlook for expected returns in bonds, equities and all financial assets.  I am in absolute agreement; adjust your return expectations for all investments you own.

US Long-term Real Yields since 1920

Cycle of Market Emotions

By now many investors have seen the illustration below and I have used it in a past post.  It gives good advice for the long term investor as it illustrates so well the internal struggle investors encounter when making investment decisions.  Now multiply one investor by millions and you can almost feel and grab out of the air, the angst, anxiety, euphoria, ecstasy and conviction of the herd of emotional investors.  It is these emotions that help make markets what they are:  volatile, chaotic, and unpredictable.  At this time, where do you find yourself in the cycle?  Always remember that the best time to invest is when no one else wants to.

Cycle of Mkt Emotions

Source:  Denver Investment Advisors

Total Return = Capital Appreciation + Income

Here’s a question.  What component of total return is more important, capital appreciation or income?  The compounding of interest and dividends in a portfolio is the single-most important factor for long-term investors to realize long-term optimal returns.  It’s not always capital appreciation.  There are periods of time where stocks significantly under-perform and may have “a lost decade” or worse, “lost decades.”  It is  something to think about as the only real growth over the past decade in the U.S. has come from deficit spending.  This cannot be sustained.

Income Cap Apprec

To illustrate compound interest, in a speech years back, Rob Arnott (founder of Research Affiliates) compared the magic of compound interest to Jesus finding a one-dollar gold coin on a sidewalk.  At 5% annual interest and over 2,000 years, the gold coin would have grown to the size of Mars’s orbit around the sun.  Albert Einstein once described compound interest “as the most powerful mathematical discovery in mankind’s history.”

Newsprint vs. Toilet Paper–An Attempt at Humor

The takeaway lesson in this graph (bottom left) is that the value investor would buy a newspaper company; the growth investor would buy the toilet paper company.  In a paper chase, Mr. Warren Buffet (devout value investor) purchased his hometown paper, the Omaha World-Herald and few other publications last December, a total of 66 newspapers to be exact.  Honestly, who am I to second guess Mr. Buffet?  But given the two choices below, I would invest in toilet paper; I hear you can advertise on it nowadays.  There is a start-up company that specializes in print advertising on toilet paper.  An idea similar to the coupons and advertising you find on the receipts at various retailers.  I am attempting to keep this clean.  So how do you redeem your coupon from a piece of toilet paper?

Paper Chase, toilet tissue WSJ

ads on toilet paper

My friends and clients thank you for your support, trust and continuing confidence during these most uncertain times.   I welcome your comments and look forward to seeing you in the New Year.

Peace and Prosperity,

Matthew D. Peck

Partner & Client Advisor

Amicus Financial Advisors, LLC

Posted in Uncategorized | Tagged , , , , , , , , , , , | Leave a comment

A Difficult Conversation: Our Local Community Banks. Are They On Your Mind Too?

Curiosity struck me recently as I became interested in how our local community banks have faired in the aftermath of the ‘Credit Crisis’ that ensnared our country and the rest of world.  For the most part, it has been all quiet on the South Plains banking front with virtually no public mention of local financial stress–that’s a good thing.  If I recall correctly, around 2009 and after the credit crisis had a firm grip on the nation, one or two local news sources had reported that one of largest banks originally from West Texas did in fact take a form of TARP money, but not for reasons of financial stress.  The bank did it mainly to access cheap government money to shore up the bank’s balance sheet to continue to fund the growth into the larger metropolitan areas in Texas. Perhaps it’s just crafty business for the leaders of that bank to take advantage of their FDIC-insured status and our nation’s financial crisis to access taxpayers’ money to be used to finance their ambition to pull away from their local peers. Why shouldn’t Wall Street’s tactics work here? Personally, it leaves a bad taste in my mouth, just because you can, doesn’t mean you should.

All that aside, my anecdotal viewpoint is that the Lubbock and surrounding areas have fared well in years after the initial credit crisis, with many small banks thriving.  The 3-legged stool of economic stability in West Texas has long consisted of agriculture, non-profit organizations, and the oil and gas industry has held steady in the face of a disruptive, malingering economic recession that has plagued counterpart cities of similar size across the country.  Here in West Texas, it’s the right balance between risk, reward, and responsibility.  The stability and prosperity of this region make it uniquely attractive to start-up banks and mega-banks alike. Take a look around, there is no shortage of banks that want your loan business and deposits.

So, is there a cause for concern in the health and stability of our local banks? Maybe, but discussing this issue (publicly) is like cussing at your mother and using the Lord’s name in vain in the same sentence. It’s almost sacrilege, but I will carry on with my blasphemous view and opinion.  Besides, don’t we all have personal relationships with bankers that extend outside the branch office? Or was that just a commercial?  I don’t have an axe to grind, I have a couple of concerns beyond just the customer service issues I’ve experienced lately with both small and Too-Big-To-Fail, (TBTF) mega-size banks. I write about these concerns from the point of view of an advisor to clients, with client capital to allocate across the risk spectrum. My job is to manage risk and I see risk in our sacred banking cash cows of the community.

One reason you won’t hear about these concerns publicly is that there is a fine line between expressing concern and exclaiming calamity that leads to a run on a bank–the latter is NOT the case.  For the most part, when I hear about concern it’s in my private meetings with clients and prospects that have large deposits at banks of all sizes.  A large deposit is a relative term and the folks that I talk to are more singularly concerned with yield and income than the health of a bank.  These folks have significant cash reserves and they are seeking alternatives to low CD and bank deposit interest rates.  Many realize that holding cash is costing them dearly and that holding cash within the walls of a FDIC-insured financial institution has not been worth the price of admission.  In other words, you may have been better off by replicating your banker’s investment portfolio, and accepting the principal risk, than holding your cash in the bank earning almost nothing.   After all, when you consider inflation and taxes, depositors/CD investors are experiencing negative yields.  The low-interest rate environment that we live in today has forced all types of investors (including bankers) to take on more risk. As it stands now, all savers are pegged to the longer end of the treasury yield curve; whether they are getting paid for it or not.  When interest rates rise in the near future, we will see how well risk is being managed.

From my view, I see some areas of concern in our local banking ecosystem.  The first concern is the rise of the “unbanked.” Those individuals that, for whatever reason, choose not to use a bank for everyday personal transactions.  The next concern is reliance on revenue from non-traditional banking segments and fee revenue, rather than loan growth revenue to support overall bank profitability.  Another area of concern is that there are too many banks chasing the same customer.  A condition that is leading to an extreme of only small banks and megabanks in the West Texas area–Lubbock specifically.  A growth by acquisition strategy is good for the bankers and shareholders but it’s not good for the account holder.  Customers don’t like change or uncertainty.  It certainly narrows the field on which banks are truly local and truly reflect the traditional West Texas banking values they so publicly pride themselves on.  Think about it, have you noticed the change in “terms and conditions” statement to your account in recent years?  Perhaps you haven’t noticed, but I have.  The last area of concern is the greatest–the changing regulatory environment.  If you are a lawmaker and have enacted legislation that bears the name, Frank-Dodd, Durbin Amendment, Sarbanes-Oxley, et. al, you have contributed to the concerns and uncertainty we face.  For better or for worse, we have yet to fully experience the ramifications of the legislation that has been foisted upon the banking and financial services industry.  Those in the financial services industry bear the burden, the customers bear the cost and the legislators proudly declare that they represent the interests of their constituents.

The devil is truly in the details.  As of December 2011, one of the top 4 banks in West Texas (by deposits) is rated a grade “D” by a bank monitoring and analytics company called Institutional Risk Analytics (IRA).  The letter grade for this bank has bounced around over the past 2 years from A to C, with the year-end grade falling to D. This may suggest concern for asset quality and bank capitalization as it could signal progressive deterioration.  I’ve come to respect IRA’s proprietary work on financial institutions.  They were spot-on during the Credit Crisis and their analytics have become an early warning system for problem banks. Bankrate.com currently has the same West Texas bank ranked 2 out of 5 stars.

The early warning indicators and the negative factors that impacted the rating include:

  • Earnings
  • Asset Quality
  • Non-performing Assets (commercial real estate and construction lending)
  • Capital Adequacy (below standard capitalization)

So what does this all mean? In my opinion, we have a local bank that is experiencing trouble with bad loans, it is less profitable and the bank may need to raise capital in the future if conditions continue to worsen.  The truth is, as many have come to loathe Wall Street, our local bankers have been just as culpable, sinful but maybe most are just not as greedy.  If I recall correctly, most of the top 5 banks in West Texas had at one point offered subprime loans through their subprime loan lending department.  If you have ever served on a board of any non-profit organization then you have certainly experienced a conflicted banker softly pitching their bank and their investment management services.  No person or entity is perfect in business, but I see way too many portraying the image of Mr. George Bailey from It’s A Wonderful Life–give me a break.

Friends, there are no “bragging rights,” or “see I told you so,” moment for having this difficult conversation.  My hope is that the imbalances within this bank self-correct and that other banks remain well-capitalized—although troubles do still linger.   If you will notice, I did not mention any bank by name and I don’t consider myself a financial journalist by any stretch of the imagination.  To manage risk you must be able see it and discuss it openly and honestly, no matter how sacred the cash cow may be.

This is a blog post that reflects my thoughts, opinions and conversations with clients, prospects and business owners.

Peace & Prosperity,


Sources:  Institutional Risk Analytics, Bankrate.com, Subsidy Scope, Treasury Department, Federal Reserve Bank of Dallas

Posted in Lubbock,TX | Tagged , , , , | Leave a comment

Two Things You Can Directly Control In An Uncertain Investing World

While it is impossible to control all aspects of investing, here are a couple of things you can directly control in this uncertain investing world.

Temper your investment return expectations.  Easier said than done, I realize.  We continue to live in interesting times and sitting back with the expectation of consistently earning a 10% to 12% annual return in the coming years on your portfolio is not reasonable—in my opinion.  In fact, it is quite feasible and it is certainly within my framework when planning with clients that we are going to continue to live in a low-return environment for many years to come.  An environment where investors will be jaundiced by volatility and where investment returns will be much less than what history has provided.  This is not what an investor wants to hear and I deeply empathize.

Case in point, the California Public Employee’s Retirement System (CalPERS) pension fund, currently has an annual expected rate of return assumption of 7.75%, a lofty return expectation.  In 2011, the pension fund managed to squeeze out a 1.1% investment return—while still positive, it’s well short of the expected return.  The mega-pension fund with assets totaling $219.4 Billion (as of September 30, 2011), has  a  world-class board of directors and access to the world’s best money-managers, yet the pension fund severely underperformed last year.  While it is true that much of the return has to do with how the overall portfolio was positioned, my point is, don’t expect too much from the markets over the next 3 to 5 years, or possibly longer.  Take what you expect to make or use any historically quoted investment return number and reduce that number by half—yes half.  In the esteemed investment world, it’s been dubbed as getting used to “half-sized” returns.  Expect lower returns and determine the impact on your portfolio, the timing for your retirement (if in the near future) and also the impact on generating a retirement income stream.

You have to remember that when planning for your future, it is not about being right and having the “right” investment return or expected return assumption.  It’s the consequences of being wrong that matter most.  Being wrong could mean having more life to live than you have money for!  If the state of California is wrong, they can raise taxes, reduce or freeze benefits for retirees to help accommodate their erroneous return assumptions.  Individuals planning for their retirement don’t have these policy tools. Individuals must review progress often, consider other retirement planning outcomes and try to remedy projected shortfalls in retirement after the luxury of time and income-earning capacity has passed.  Investing for the long-term takes a deep well of patience, perspective and planning.  There are now a few generations of investors that have never experienced current market conditions and the extreme volatility.  For the record, I’ll be happy to eat these words should return outcomes be better than expected!

Another aspect of investing you can directly control is the total cost of ownership for your investments.

As Americans we pride ourselves on owning a car.  We spend countless hours researching engine performance, gas mileage, amenities of the interior of the car such leather seating, the number of cup holders and the list goes on.  We haggle over the price of a car until the price is within a couple of hundred dollars of the dealer’s cost (with emphasis and exaggeration).  By the time the deal is done, we have directly haggled with the salesman, sales manager and possibly the general manager.  Then, we blissfully drive off into the sunset because we got the car we wanted at a great deal.  The next day, buyer’s remorse overwhelms our conscious. Why do we experience car-buyer’s remorse?  Because we failed to plan for the additional cost of insuring the car and also because of the fact that we paid too much to finance the car.  Oops, we didn’t look at the total cost of ownership!

When it comes to the investments we own we do almost the same thing. A ‘financial advisor’ makes recommendations based on the merits of the product he is selling to you and you accept the recommended investment strategy.  In your mind you are thinking if the projected investment returns work out you will be able to:  fund your daughter’s wedding, enjoy a comfortable retirement, help fund your grandchildren’s college education, etc.  What you failed to consider is how much it will cost to buy and own this investment. Nor did you consider if there is a more cost effective option to help you reach your goals and objectives?  The dirty little secret is that the more an investment product costs, the more the financial advisor/broker makes in compensation and that additional compensation doesn’t always translate into a higher return on your investment.  Nor does it always translate to better service.  In my world, service does not mean call-center!

It is an irrefutable fact that the more you pay in sales charges, commissions, mutual fund expenses, bid/ask spreads and fees, the less you make on your investments over time.  In the low-return environment we live in today costs really matter!  The fees and expenses you pay should be clear and simple to understand.  For example, in my firm we get paid directly by the client for financial planning and investment advice.  My fees are based on an hourly fee or the amount of investments under our management and our services are outlined in a written contract.  The client chooses the model to adopt.  Transparency is a rare commodity among “financial advisors.”  I take pride in our simple, clear and client-centered policies.  To be clear, there are engagements where my service offering is not always the cheapest option and the simple reason is there is a true cost to investment advice and expertise.  Be mindful of whether you are receiving investment advice or just advice that is directly related to the product being sold to you.

Stay tuned, in my next piece I will discuss the finer points of financial product salesmanship versus paying for true financial advice.  There is a huge difference between the two.

Peace & Prosperity,

Matthew D. Peck

Posted in Uncategorized | Tagged , , , , , , , , , , , , , | Leave a comment

Finding Humor In Stock Ticker Symbols

Let’s just get this out-of-the-way, this post is intended to be construed as sophomoric, juvenile and it is my attempt at humor.  Too many in this so-called world of “high finance” or in today’s world, what is left of finance take themselves way too seriously.  So in the spirit of irreverent and fun tomfoolery, I present to you my list of humorous stock ticker symbols that could have been easily imagined by an “Occupy Wall Street” type.  

Symbol Name


Brookfield Asset Management Inc


iPath Pure Beta Agriculture ETN


Cedar Fair, L.P. Common Stock


Nicor, Inc. Common Stock


Harley-Davidson, Inc. Common St


Key Energy Services, Inc. Common


OM Group, Inc. Common Stock


Potash Corporation of Saskatchewan


Banco Santander, S.A. Sponsored


Liberty All-Star Equity Fund Co


Yum! Brands, Inc.

Each ticker is a legitimate company or security that is listed and trades on an American stock exchange.  Feel free to conduct your own due diligence on each company, you may be surprised to learn what each company actually does to bring value to a shareholder—some aren’t so obvious.

 My personal favorite ticker symbol of this group is STD, Banco Santander, S.A. (ADR).   For those that are not familiar with the company, it is a Spanish banking conglomerate.  Being that the ticker STD also stands for Sexually Transmitted Disease, it just goes to show that during the throes of money changing hands, you never know what you might catch!  Furthermore, what were the folks at the New York Stock Exchange and the STD bank executives thinking when they allowed and/or chose this ticker symbol to represent their company? 

Lastly, in the words of Steve Leuthold (a veteran money manager from Minnesota), our thoughts are “sometimes irreverent sometimes irrelevant.”



Posted in 403b, Uncategorized | Leave a comment

The Most Volatile Substance Known To Man: Gold

As an investment advisor I duly note that I have missed the boat on owning gold in client portfolios.  But I have my reasons—the primary reason for not recommending gold for clients is that it has never met my criteria for inclusion in client accounts.  Gold does not pay a dividend, it does not earn interest, and it seems that the only way gold has legitimacy as an asset class nowadays, is if there is impending global-economic doom.  

If economic doom is on the horizon (and I don’t think it is) gold won’t save you or your purchasing power.  Now, there are other lustful traits that gold exudes.  For example, large flashy jewelry is what we call “bling.”  Many people believe in the power of “bling” as a way to attract a mate or several mates and they feel their “bling” is worth a certain value.  If you have ever caught an episode of the reality show Hardcore Pawn, you will know exactly what I mean—the only reality show I watch by the way.  I’m drawn to the show because it makes the viewing public graphically aware that market functions work in a very unsophisticated manner.  You can only sell something at a price that someone else is willing to pay.  But I digress. 

So, after you strip away the legendary attributes of gold and its ebullience has waned, what is left?  As an old boss put it, “yeah, I still have some of that yellow crap from the late 70s. It just takes up room in my safe.”  After the fact and after the thrill was gone my old boss saw the investment for what it was, a poor-timed decision that has taken a long time to pay off.  The current love affair with gold will end. We have seen this movie before and historically it doesn’t end well for gold investors. 

 Admittedly, I have personally witnessed a couple of fortunate investors that have made a small fortune in the yellow metal.  Rather than holding physical gold, these investors made their small fortune by buying the penny-stocks of companies no one had ever heard of about 8 to 10 years ago.  Whether it was prescience or blind luck is to be determined, but these investors look like total geniuses now.  One question remains. What is their exit strategy?  To be a successful, long-term investor you may have bought an investment at the right price; but, at what price do you sell?  Consider this untimely purchase and excerpt from Peter L. Bernstein’s book, The Power of Gold, the History of an Obsession.

 “The rush into the gold markets produced much the same kinds of results as the gold rush to the Klondike eighty years earlier, where only about four hundred people out of one hundred thousand prospectors hit it rich. Indeed, it is ironic that the State of Alaska Retirement System bought a ton of gold bullion in 1980 at $651 an ounce, and then a second ton at the end of 1980 for which they paid $575.  In March 1983, the state sold out at $414.“  “In the frantic inflationary fevers of the late 1970s and early 1980s, frightened and even sophisticated people turned to gold from dollars.  In the inevitable moment when such turbulence reappears, that history might well repeat itself.”  (Bernstein, 1999)

 With a leadership deficit in Washington and a severely limping global economy, I share the same concerns as any market participant with a desire to escape the depreciating dollar and the haunting reality of uncertainty.  In this uncertain investing world, every investable asset class known to man has experienced tremendous volatility. There has been no place to hide– even with the so called safe-haven that gold is supposed to be.  

With gold,  I have seen positive correlations develop with the movement of stocks and I believe it would be a surprise for most investors to know that the SPDR Gold Shares ETF (ticker: GLD) on a 5 year annualized basis has been more volatile than the S&P 500 Index.  Not really a selling point I know.  However, the volatility in gold we see now is nothing compared to the price volatility gold experienced during the early 80’s when gold reached its peak price of $850 an ounce on January 21st of 1981. On the next day, January 22nd of 1981 the price of gold plunged by 17% to $705.  By 1985, gold was down around $300 where it leveled off and trickled down to approximately $250 an ounce in 1999.   

 In the end, not only did Federal Reserve Chairman Paul Volcker break the back of inflation, he also could also be credited with busting the speculative bubble on gold.  While the inflation rate was around 3.5% annually from 1980 to 1999, gold fell over 60% during the same period.   That is an incredibly long period of time to hold an investment that is a losing proposition and I’m certain it tested the mettle of the staunchest goldbug.  

The sober fact is that most investors, including central banks, college endowments and state retirement systems lost money by holding gold when the gold bubble burst.  To add insult to injury, the inflation protection that had been an inherent quality of gold ownership also fell to the wayside as bonds were yielding double digits and stock yields were as high as 6%.  Who needed gold to hedge inflation when you could out-earn inflation with interest and dividends? Who knew?  All this in retrospect of course.  


The future belongs to those who believe and invest in it—that includes enduring the discomfort from the inevitable economic malfunctions and meltdowns that will come and go.  The problem is over time our memories become dim and we become deaf to the lessons that history has provided us.  This leads to my conclusion is that gold is the most volatile substance known to man!  It’s a risky trading vehicle that in my view represents a physical manifestation of volatility, fear and uncertainty.  At best and at current prices it’s a way for folks from all walks of life help to make ends meet by selling their scrap metal.  As the chart above suggests, it might be best to be a seller at these prices rather than a buyer. 

  Gold Facts:

  • In 1980, the $1.6 trillion invested in gold exceeded the market value of $1.4 trillion in U.S. stocks.
  • In January 1980, the price of gold jumped by $110 an ounce to $634 during the first two business days of the month. Bernstein notes that the January 1980 gold market turned out to be one the wildest months of any market, anywhere, anytime.
  • Each bar of gold held in vault storage is impressed with an owner’s seal or other mark for identification.  The process became known as earmarking gold  an expression that evolved from identifying the ownership of domesticated animals.
  • Gold bricks weigh about 30 pounds each or 400 troy ounces.  A cubic foot of gold weighs half a ton.
  • According to one source.  You can draw an ounce of gold into a wire fifty miles in length or you could beat that ounce into a sheet that would cover one hundred square feet.

 Peace and Prosperity,

 Matthew D. Peck

Posted in Uncategorized | Tagged | Leave a comment

Steering into the Skid

Do you remember the first time you drove on an icy road?  Seems like an odd question to ask but the question is essential to coping with short-term market events that are coupled with long-term economic uncertainty.  The experience from that moment of slipping and sliding in a rear-wheel drive car is one that you will always remember.  You remember being told to “steer into the skid” during the driver’s education course you took, but it wasn’t until you experienced the moment first-hand that you understood what the term meant.  After all, “steering into the skid” is counterintuitive, it goes against your natural instinct which is to slam on the brakes and jerk the steering-wheel in whatever direction the wheel will turn.  At least that was my first experience.  It took time to understand how your vehicle would operate in icy conditions, but most importantly it was a moment in time that you had to harness your fear and take control amid uncertainty.  As investors, we are in the midst of a terrible global economic winter storm.  But the question is, how have you navigated icy-road (market and economic) conditions?  From the lesson learned so long ago, are you currently “steering into the skid?” Or has fear, and economic uncertainty caused you to veer off course?

Posted in Uncategorized | Tagged | Leave a comment

REPOST: Public Enemy #1: BP, Business & Profits, The United States of Anti-business

REPOST from July 2010.

It’s tough out there…being an investor, a shareholder, a retiree, a business-owner, an executive of a publicly traded company—anyone with capital at risk.    It seems that the words business and profit are now met with such disdain and disgust that even the whisper of such words can bring down the wrath and unquestionable scrutiny of an overzealous, far reaching Congressional inquiry, or federal investigation. Or even worse (I’m shaking in my boots) the ire of an American President that wants to know “whose ass to kick.”  

The words business and profit can sure wreck a cocktail conversation.  Recently, I made an economic observation with a mixed crowd of folks I had recently met.  I said nothing earth-shattering in particular, but one remark struck me.  As a women mocked me directly by asking, “if that was something that I learned in business school.”  All I said was that there was a glut of fine art, wine and other collectible items because of the Great Recession.  She was clearly offended and had no horse sense to speak of, but I made no apologies as I can only be myself.  I’m left wondering if business is now on the list of taboo subjects that cannot be discussed.  You know, no discussion of religion, politics, the environment or now—business. What of course is left to chat about?

Make no mistake my friends, business/commerce of all sizes are under assault. They are being demonized, ostracized and politicized.  For what purpose and to what end? Consider for a moment, the companies that represent the S&P 500 Index are hoarding cash on their balances sheets to the tune of $1.5 trillion.  It should be no surprise that these companies and therefore the market itself is anticipating and preparing for a new era of high taxes, an age of re-distribution of wealth and coercion of corporate responsibility via scrupulous re-regulation.   Rather than place more capital in service in the form of capital expenditures, or hiring additional workers to boost economic growth, Corporate America, is holding back with a very watchful eye on Congress.  As if you haven’t noticed.

Two most disturbing statements from the President and his White House Chief of Staff Rahm Emanuel: 

–   “President Obama, from a stump speech in Quincy, Illinois, “I do think at a certain point you’ve made enough money.”

–   “In the past, corporate America was not only at the table, they owned the table and chairs around it.  Obama doesn’t start off confrontational, but he will be confrontational if there is resistance to the notion that there are other equities.”   White House Chief of Staff Rahm Emanuel.

All political banter aside, take those statements for what they are worth–but the underlying message is the same.  The underlying message is the widely held belief that for far too long “big business” has operated with little or no regulation and that only too few have benefited.  Hold the wagon… little or no regulation, only too few have benefited?  We are now living with the consequences of policies and a regulatory environment in which everyone was entitled to benefit!  We now have a housing glut, healthcare reform that we cannot afford, blank checks to 2 wars that are unending and a paralyzing notion that no one should be allowed to fail.  It all leads to a mindset of entitlement of what one thinks he deserves with little regard to the cost.   

It is understandable that workers in non-financial sectors of various industries (and all investors, for that matter) feel like they have suffered unfairly due to the risk-taking, excess and the unending correction in the financial markets.  Naturally, for some the only way to express that acrimony is by supporting a government that will re-regulate.  Buts let’s be careful of what we wish for.  The legal landscape of this country is changing swiftly, capriciously and with unintended consequences sure to meet us in ways we have yet to discover.   Again, much like the belief that everyone should be entitled to a house led to an oversupply in housing and therefore slump in housing prices.  And since when do we have a Czar for this and that? Or a Special Investigatory Committee Liaison? That is not what I know to be American. 

At the risk of sounding professorial, or like a crusty economist, the free market participant, (aka, shareholder, taxpayer, small businessman) understands that the market will always correct excesses, imbalances and dislocations in any trade or business in due time.  The participant understands that Capitalism is not perfect and the fact that it is not perfect helps to make the market what it is.  Problems always occur when market forces are met with intervention by the firm-hand of government. 

 “If one rejects laissez faire on account of man’s fallibility and moral weakness, one must for the same reason also reject every kind of government action.”   Ludwig Von Mises, Austrian Economist

 Peace and Prosperity,



Posted in Uncategorized | Tagged , , | Leave a comment