Der Himmel Fällt and Dancing By Myself

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BAM MARKET WRAP

September 30, 2016
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Der Himmel Fällt and Dancing By Myself

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WHERE WE HAVE BEEN

After a rather sedate summer with low volatility, September has produced a little more excitement. Despite all the back and forth, if today's gains hold into the close, the markets will finish right where they started the month. There was much angst earlier this week as there were rumblings that Germany's largest bank (Deutsche Bank) was on the verge of a Lehman like failure. Earlier this week, 10 large hedge funds significantly curtailed their dealings with the banks and a $14 billion fine that the US had levied against the bank for its role in the 2008 financial crisis came due. Many investors were worried that Deutsche Bank (DB) would need a bailout to deal with "a run on the bank" as the stock declined 25% over the last 3 weeks (62% over the last year). However, this morning it was leaked that the German government was considering a bailout and the US government agreed to a lower fine of just over $5 billion. The result was a 14% increase in DB shares and a sigh of relief from global markets. The justifiable concern is that any bailout of DB would open the door for other troubled European banks to tap into the largesse and Pandora's box would be opened. For now, at least, it looks like the crisis has been averted but the story is far from over. Europe, and particularly its banks, are in trouble and it will take time and a much improved economy to fix their woes.

WHERE WE ARE HEADED

Back in the USA, the Fed stood pat and gave less than hawkish comments on future rate increases. As we have written for some time, the markets are back-stopped by the accommodative Fed and that doesn't look to be changing anytime soon. While a December rate increase is possible, we think it is more likely that we won't see a rate hike until 2017 and, even then, the Fed will be measured and will err on the dovish side of things. Low interest rates will be around for longer than many of us think. For this reason and despite a continuing drift downward in GDP, financial markets are likely to continue to move upward. With the election on the horizon, October will provide some increased volatility but, when it is all said and done, the markets will deal with either candidate after some initial knee-jerk reactions. That said, there will be winners and losers and we will be looking to capitalize on the areas of strength while avoiding those with weakness.

HOW WE ARE DOING

While the market experienced increased volatility, our portfolios continued their low volatility upward momentum with gains in all three Fidelity portfolios for the month and quarter. We haven't made many changes over the last few weeks since our current holdings have responded so well to the current market conditions. We are reviewing holdings daily so that could change if the market environment changes. Similarly, we are always looking to upgrade funds to better performing ones. We are generally optimistic going into the rest of the year but may have some choppy trading.

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Tidbits
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DOUBLE-DOUBLE - Fiscal year 2017 (10/01/16 to 9/30/17) begins this Saturday. The US government is projecting outlays of $4.073 trillion for the upcoming 12 month period. Outlays have grown from $1 trillion in 1987 to $2 trillion in 2002 to a projected $4 trillion in 2017 (source: Office of Management and Budget).

NEED TO CHANGE THIS - The top marginal corporate tax rate in the United States is the 3rd highest in the world out of 188 countries. Only the United Arab Emirates (UAE) and Puerto Rico have a top marginal corporate tax rate that is higher than the USA's (source: Tax Foundation).

EXPENSIVE TO LIVE - 11% of American homeowners spend at least 50% of their pre-tax income on their housing costs. 26% of American renters spend at least 50% of their pre-tax income on their housing costs (source: Joint Center for Housing Studies at Harvard University).

WE WILL SEE - Federal Open Market Committee (FOMC) data that was released following their 9/21/16 meeting indicates the Fed expects that its target rate for short-term interest rates will be 1.5 percentage points higher by 12/31/18, i.e., suggesting 6 separate increases of ¼ of 1 percentage point each (source: FOMC).

TAX DATA - The 6.22 million tax returns from 2014 that reported at least $200,000 of adjusted gross income (AGI) represent 4.2% of all returns filed, received 34.2% of all AGI nationwide and paid 58.2% of all the federal income tax that was paid nationally in 2014 (source: Internal Revenue Service).

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Next weekend will be a big weekend for the Bills and Handy families as our oldest Emily and Jake will be married. Our house is a whirlwind of activity as final arrangements are

made. I will say that I have felt like Steve Martin in "Father of the Bride" on more occasions than I would like to admit! However, it has been a wonderful process and will, no doubt, be a wonderful day. It is an outdoor wedding so we are checking forecasts daily and all looks great right now. The only major snag is an injury Kelly suffered a couple of weeks ago as she got a little over industrious out in the yard with a shovel and injured her foot. Thinking it was nothing more than a bruise, she walked on it for several days before going to the doctor this week. As you might imagine, Kelly has a fracture in her foot and is in a very fashionable boot right now. More tests coming today to see if a pin needs to be inserted but hopefully it will heal on its own. So... my dance card is open for the wedding as Kelly will most likely be relegated to spectator. However, if you know Kelly, you also know that there isn't much that will keep her off the dance floor so I am sure she will cut a rug at least a few times - boot or no boot!

Unless there are major developments in the market, there will not be an update next Friday as I am sure to be helping out with last minute preparations. Enjoy your weekend and Go Vols.

Sam and Bo

Your financial partner for twenty years and counting because managing your money never gets old.

We continue to make posts to our blog throughout the week so check it regularly if you want to see our thoughts. You can access it by following the link below.

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In these uncertain times, a trusted financial adviser is more important than ever. Whatever comes over the upcoming months and quarters, the markets are certain to have lots of volatility and wild swings. Europe, the US economy and dysfunction in Washington, and continued trouble in Iran and the Middle East to name just a few. If you have family, friends and neighbors that may benefit from our services, would you please forward this email and/or provide our contact information to them. We purposefully do not spend time marketing our services so that we can devote all of our resources to managing your assets. Thank you to all who have provided us referrals - it truly is the greatest compliment you can give us.

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Remember to visit our blog for market comments and observations in between newsletters. We try to provide a few comments in between newsletters and certainly when there is a particularly interesting market day. You can access it by clicking here.

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Sam Bills - (865) 525-1329

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Bo Bills - (615) 371-5928

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BAM Market Wrap is produced and distributed regularly via email by Sam C. Bills, Jr. of Bills Asset Management 3001 Flagstone Drive, Franklin, TN 37069 Phone (615) 371-5928 Fax (615) 250-4903 - www.Billsasset.com

Bills Asset Management is an independent registered investment advisor (RIA) not associated with any financial institution. Data used in this publication is gathered from reliable sources, although completeness and accuracy cannot be guaranteed. Performance results do not take into account any tax consequences and are not predictive of future results. This publication does not give any specific investment advice, does not provide financial planning services, or consider any individual's financial situation, needs or goals. This publication may not be reproduced or retransmitted in whole or in part without the consent of the author, Sam C. Bills, Jr.

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