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The Ricks Report – October 23, 2017

The Ricks Report
October 23, 2017

Numbers of $ignificance

• INCREASING EQUITY – The average loan-to-value ratio in the US housing market as of 6/30/08 was 55%, i.e., the average home mortgage had 45% of equity behind it. The average loan-to-value ratio in the US housing market as of 6/30/17 was 42%, i.e., the average home mortgage had 58% of equity behind it (source: Federal Reserve).
• DEFENSE FUNDS DECREASING– America’s spending on “National Defense” (stated as a percentage of total government outlays) has fallen from 43.2% in fiscal year 1966 to 15.1% in fiscal year 2017 (source: Treasury Department).

Winning at Life with Gregory Ricks

Tune in every weeknight from 7:00 pm to 8:00 pm and every Saturday from 10:00 am to 1:00 pm!  We are now on News Talk 99.5 WRNO and News Talk 104.9 WBUV, as well as Facebook LIVE, Periscope (GregoryRicks) and the iHeart app.  Gregory Ricks and James Parker will be live in studio talking about some great current events and financial solutions. This week’s guest will be Wes Blanchard, Estate Planning Attorney and member of the Total Wealth Authority. Remember, you can listen from any smartphone or computer through iHeartRadio.

The Markets

And the hits just keep on coming.

Last week was the anniversary of Black Monday. On October 19, 1987, the Dow Jones Industrial Average (Dow) lost 508 points, or more than 20 percent of its value, as it fell from the previous trading day’s closing value of 2,247 to 1,739.[1] The culprits behind the historic drop are widely thought to be program trading, high valuations, and market psychology.2

The anniversary didn’t put a hitch in the markets’ giddy up last week, though. The Dow closed above 23,000 for the first time ever on Wednesday. That’s the fourth thousand-point milestone the Dow has passed this year, according to Reuters.3

The Standard & Poor’s 500 Index also finished the week at a new high.4 Strong earnings, along with optimism about fiscal and monetary policy, contributed to investors’ optimism. Financial Times5 wrote:

1“^DJI Historical Prices | Dow Jones Industrial Average Stock.” Yahoo! Finance, Yahoo!, 23 Oct. 2017, finance.yahoo.com/quote/^DJI/history?period1=560149200&period2=561790800&interval=1d&filter=history&frequency=1d
2Investopedia. “What caused Black Monday, the stock market crash of 1987?” Investopedia, 21 Apr. 2015, www.investopedia.com/ask/answers/042115/what-caused-black-monday-stock-market-crash-1987.asp.
3 Valetkevitch, Caroline. “Dow ends above 23,000 for first time; IBM jumps.” Reuters, Thomson Reuters, 18 Oct. 2017, www.reuters.com/article/us-usa-stocks/dow-ends-above-23000-for-first-time-ibm-jumps-idUSKBN1CN1L4.

“U.S. stocks hit record highs yet again and the dollar touched its strongest level against the yen for more than three months as growth bulls applauded news that the Senate had adopted a fiscal 2018 budget resolution, opening the way for tax reform. U.S. Treasuries fell – most sharply at the longer end of the curve – as participants fretted about the prospect of increased federal borrowing and potentially higher inflation.”

4 Forsyth, Randall W. “What’s Really Driving This Stock Market Higher.” Barron’s, 20 Oct. 2017, www.barrons.com/articles/whats-really-driving-this-stock-market-higher-1508556386.
5 https://www.ft.com/content/f43097dc-b53b-11e7-aa26-bb002965bce8
It’s interesting to note, despite major U.S. stock markets hitting new highs, bullish sentiment has been below the historical average 36 times this year, including last week. The AAII Investor Sentiment Survey6 showed bullish sentiment down 1.8 percent, while bearish sentiment gained 1 percent and neutral sentiment was up 0.8 percent. Of course, some consider this survey to be a contrarian indicator.

Data as of 10/20/17 1-Week Y-T-D 1-Year 3-Year 5-Year 10-Year
Standard & Poor’s 500 (Domestic Stocks) 0.9% 15.0% 20.3% 10.6% 12.4% 5.5%
Dow Jones Global ex-U.S. -0.4 20.8 19.4 4.6 5.0 -0.6
10-year Treasury Note (Yield Only) 2.4 NA 1.8 2.2 1.8 4.4
Gold (per ounce) -1.4 10.5 0.8 1.0 -5.8 5.5
Bloomberg Commodity Index -0.7 -2.6 -0.9 -9.9 -10.1 -7.1
DJ Equity All REIT Total Return Index -1.0 7.3 7.2 8.9 10.1 6.4

S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.

Sources: Yahoo! Finance, Barron’s, djindexes.com, London Bullion Market Association.

Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.

Know what can be really scary? warehouse clubs. Like horror flick fodder (extras and co-stars who ignore their gut instincts and venture into places they shouldn’t), people go into warehouse clubs thinking they’ll be able to buy just the items they need and escape without serious injury to their budgets. In reality, only shoppers with the preternatural ability to avoid impulse purchases manage it, reports AARP Magazine.7

That doesn’t mean you won’t find good deals at warehouse clubs. You will, but you have to exercise tremendous self-discipline. AARP Magazine7 and Kiplinger’s offered insight to some of the better values at warehouse clubs.9 They include: