2018 Economic Update Webinar : Third Quarter

2018 Economic Update Webinar : Third Quarter
9
Nov

2018 Economic Update Webinar : Third Quarter

We appreciate you joining us. The presentation is another in our continuing efforts to be more than just a CPA firm. We’re having great participation, got a very diverse, believe it or not, international group on our webinar today. Obviously, there’s considerable interest and to some degree concern and to some degree rejoicing. So all those are things that we will address. We appreciate your patience in allowing us to delay the update until after the midterm elections. We hope to give you a general overview of the key issues impacting both the US and the global economies, we’re focusing on the areas that will impact most of our attendees. Thank you for registering early and for some of the questions you’ve brought in I’m going to make sure we hit some of those topics.
 
Well, thank goodness October and the elections are mostly behind us. Obviously, October is behind us but the elections are still dragging on. We’re in Florida. So the Florida Senate race may not be finalized until about the 15th, but it was a wild ride. I think most of us would like to forget October. More about the election later but I’m going to review the third quarter and then review the impact that we’re anticipating as a result of the election. So our topics today are taking a look at the business cycle. Where are we in the cycle? History shows us that those cycles come through and there are certain things you think about in each phase of the cycle.
 
We’re going to talk about fear because that’s always very real when we’re going through. Geopolitical tensions, we’ll discuss some of those. Interest rates and what’s happening, and of course, the Fed is meeting as we speak. Yes. Inflation because that is something that has been in the background but is beginning to show up a little bit. Tax reform, it’s been an ongoing topic now, it’s been almost a since Congress passed the major tax act and the impact of that is still being reflected in the economy. We’ll go over the watch list and we’ll talk about investing in uncertain times.
 
So let’s look at the general economic conditions. The Federal Reserve is assuming a more restrictive monetary stance. They’ve continued to bump interest rates at a quarter of a point per bump throughout the last year or so. Obviously, President Trump is not enamored with that. The market is not enamored with that. But the reality is, that is their throttle on inflation and a rapidly heating up economy. So that’s the one tool that they have to make an immediate impact on keeping the economy from getting too warm. Many of us on the call remember the early ’80s, late ’70s, early ’80s the 18% prime rates, 22% interest rates. Actually had an 18% first mortgage one time. We know what that’s about and this is how the Fed is trying to monitor that and throttle that so that we hopefully don’t revisit those times again.
 
the economy seems capable of handling that tougher monetary stance. We’ve seen the market hold its own. It’ll go through the temporary dip but then it bounces back and it’s new highs. That monetary policy tends to remain very simply a balancing act and the feds are monitoring it very closely. I won’t pass judgment as to whether it’s a good thing or a bad thing but it’s the thing they have to work with. So that’s what they are using. Earnings season failed to impress. It was a volatile October. It was the oddest thing to see a company report higher revenues, higher earnings and then the stock falls 5%. That’s always intriguing to watch and, of course, much of that dealt with consumer sentiment going on pre-election. I’ll talk about that as well in a minute.
 
What we found out about is my fifth bullet point on here, is why investor so worried in its one word, uncertainty. The market has a tremendous history that when things are uncertain, it does not do well. It remains volatile. You see these wide hundreds of point spreads even during intraday trading. So it can be very challenging if you’re a trader participating in the marketplace. Let me define quickly now that I put emphasis on the word trader. There are two types of people who come into the market. One is a trader who’s looking for the short term activity in the volatility, and one who is an investor who’s buying a company for the long haul. Those have two different motivations when they’re coming in. One common motivation is to make a profit. But one is looking short vision and one is looking very long vision. So hope that helps you a little bit in your thoughts.
 
So where are we in the business cycle? From a macro-standpoint, we saw solid growth but the global business cycle is becoming less synchronized. You’ll see. I’ll talk a minute about in Europe where you have considerable concerns and areas going on, Italy, Turkey. It seems like every time there’s a new country that pops up that’s part of the European Economic Union. China has acknowledged slow growth but their imports are continuing to rise. But there’s a clear shift toward policy easing and that global activity has likely peaked. The US economy is strong but the cycle is becoming more mature as the Fed tightens interest rates, and I’ve got some pluses and minuses to what creates the activity during there.
 
There’s ample corporate liquidity which is a huge positive. But ultimately, this may not offset the tightening central bank liquidity. As interest rates get higher and the cost of capital gets a little bit higher, they’re gonna have to rely more and more on their corporate liquidity to fuel the expansion that we have enjoyed these last few years. So that’s, again, part of the maturing of the business cycle. Obviously, the trade tensions could remain a headwind. I’ve got a list in a few minutes of countries we’ve managed to have challenges with, I guess, is a nice way to present it right now. Very simply because of the tariffs and the trade, NAFTA, number of agreements that are in there and things are just in a state of flux. And of course, countries don’t like the uncertainty any more than investors do.
 
On the asset markets, global stock prices and bond yields rose. We saw a little bit of activity in the international side. Nowhere near what we might expect as far as the stock prices, but the bond yields are getting up a little as well. There’s been a monetary shift to reduce the global liquidity growth and that has had a boost in market volatility. So we’re seeing much smaller allocation tilts, much smaller tweaks in the international sector at this point in the cycle. So what do we want to do? Obviously, number one is diversify, diversify, diversify. That includes inflation resistant assets such as your high dividend paying stocks businesses, those of that nature, real estate.
 
Leading economic indicators. Well, the leading economic indicators tell us or imply that the recession is years out. I left the trend in here since the first of the year and we have seen a steady increase in the leading economic indicators for the US. I don’t go into the International on this, I just want to look at the US. As you can see, since December for the three quarters we’ve had a 4.8% increase in the leading economic indicators. That’s a positive. So we may hear things are good, bad or whatever in the market place but this is the statistical look at it, not an opinion, these are statistics. So those leading economic indicators are sitting there.
 
What we find is that the economy seems capable of handing that tough of monetary stance I mentioned. Most sectors continue to press ahead at healthy pace. We see healthcare increasing, we see energy [inaudible 00:08:59], we see financial, we have been very fortunate to see favorable activity in many different areas. So we’re very encouraged by this. That index of leading indicators has risen for 12 straight months, that’s huge. Usually, you have some declines in there and as much as we have the political whipsawing going on, that’s amazing that those have stayed that true. True growth may decelerate somewhat in the coming months, but the conditions needed for a major slowdown just are not there. The LEI is just remaining way too strong.
But what really drives the market is the consumer confidence. The Conference Board Consumer Confidence Index, this is the US and look at the increase between December and September. That’s about 15 point spread, so better than a 10% increase in consumer confidence. This is in spite of the election, in spite of the tariffs. In spite of all of those economic things that have gone on, consumer confidence is strong. I’m going to push gonna push that to a particular area that I personally think is causing that and that is one word, jobs. When people have jobs, when people have income, their confidence is there. But this also measures what they are looking forward in the next 12 months.
 
Are they expecting that they will have jobs? Are they expecting that they will have the money to spend on their families? It’s not about saving, it’s about what’s in the paycheck and what can I go do for my family right now? So if that consumer confidence remains strong, as we are seeing, and getting stronger then that is a major bode for what will happen to corporate earnings and what should happen to investing in the market. The real big picture. Got a number of these for you. The interesting one was that earnings season has been in full swing. Earnings season if you know happens quarterly, starts about the fourth or fifth day following the end of a calendar quarter and really runs for about six to seven weeks, post a quarter to about the midpoint. So we see companies reporting earnings virtually every day.
 
What we have seen, 80% of the S&P 500 companies reporting thus far are topping the forecast for the third quarter. Overall, that’s a good showing. It looks like the ones remaining anticipate that there should be some continued solid earnings, but decent gains are also likely in this final stanza. All this is aided by solid demand and, of course, lower taxes. Lower taxes is one that has driven the early quarters and now we’ll see how that continues as we go through the latter quarters. Very important for us.
Continuing on the big picture. It looks like the indices, the measures are showing us that we are now very solidly in a mid-cycle and maybe entering the late cycle. Corporate profits, we’re seeing a little bit of margin decline. So we’re seeing this anomaly going on and we’re having to try and discern what is happening with margins with respect to the income tax reform that was such a boon in the early part of the years, and what has happened to true company performance, operating performance. It appears that we’re beginning to see some margins decline a little bit, which could move us from the mid-cycle to the late cycle.
 
Inventories. I look back a year ago and inventories were low relative to orders. We’re seeing a tiny bit of inventory buildup. There’s some question marks, of course, because of the tariffs. What’s happening? Are people buying ahead in anticipation of tariffs? So there’s some questions there, but it appears to be more of a mid-cycle type inventory. Employment, tight conditions. I’m gonna talk about unemployment a little but unemployment, of course, is reaching … Seems like every month it reaches another low. We are essentially at full employment at this point by economic definition. So we’re really looking that employment is leaning towards the late cycle.
 
Wage growth is beginning to accelerate because of that lack of labor. So you have to pay a little more for that same labor just because it’s a little scarce. We’ve also got the monetary policy where the Fed begins to tighten and the yield curve starts to flatten or continues flattening. Then the credit. Lending standards begin to tighten, banks are watching a little bit closer. Having worked with so many clients on refinancings and business loans over the last few years, I’m not exactly sure how those lending standards could get much tighter, but apparently that’s the case. It’s interesting even here at the firm, we have someone working on applying for business loans as a blog that will come out on our website in the next few days. Just the comments going into that from our team and experiences, it’s amazing how the Feds can tighten things.
 
We’ve seen this growth on the chart on the right, US profits after-tax. Keep in mind when we get into ’18, some of that jump is after tax and of course a lower tax rate makes a big difference. Let’s look at the business cycle framework and you find different economies around the world. No one really seems to be in that recovery stage. Everyone seems to have peaked or at least you’re substantially developed countries. You see, we’re sort of in that middle. There’s still a little bit of expansion going on. How long we can hang in that middle becomes a question mark and actually this election may be favorable in that area and I’ll get to that in a moment.
 
So you can see where the cycle is and which countries are having issues. We always have questions about China, just how accurate is the reporting that we’re getting from China. So that becomes a question. But if you look, your major developed countries are all kind of in that mid-range part with a little expansion but starting to ease into the contraction part of the economic cycle. So what is the market thought about things? This is through September. In 2018 through September, the S&P was at 6.2%. If you look at that whole right column from 2009 to 2018, it’s all black. We haven’t had a negative year since 2008 and I’m sure knowing the names that are on this call, we all remember the pain of 2008.
 
But my real interest in this chart yields to a number of questions of, what should I look at with my retirement account? What should I expect long term? If you look at this over the 45 years average, you would expect an average key point of 10.4%. Are we due for a negative year? Absolutely. But again, those leading economic indicators and that consumer confidence doesn’t point to that. So be careful of being caught in a bad month with a lot of pre-election jitters and making long-term economic decisions just during that period. Look to the trend, not the incident. Very important for you to think about when evaluating your portfolios.
 
Geopolitical tensions. Oh, boy. This is lots of fun. I’ll start with China, the Panda has been poked. Used to be the old phrase, don’t poke the bear, but that was when it was Russia. I didn’t even put rush on here, that’s a whole nother ballgame. But the Panda has been poked, China is not impressed with the tariffs. They seem to feel that their human rights and their regulatory status that they have that the US, the heck with you, we don’t really care. We can impose tariffs just as well as you can. Well, imports for China grew in October. Excuse me, exports from China grew in the teens and imports only grew about 1%. So China is still doing real well in spite of the tariffs.
 
Iran. Will the sanctions have the desired impact? Well, there’s one country that is aligning with Iran that causes real question marks, and that’s Russia. Russia basically has thumbed its nose at many of the sanctions that the US has placed especially in the oil and gas area. They are still doing business with Iran. So we’re ending up with Russia and Iran being a very close ally. That could have long-term implications. But we’ll have to continue to monitor that and see if the sanctions that started on Monday in Iran will continue or will have the impact anticipated.
Treaties. Interestingly enough, treaties are all ratified by the republican-controlled Senate. So the ability to get treaties essentially ratified or I should say the final vote in the Senate is a possibility now that Republicans maintain control of the Senate. But as we all know, there’s the give-and-take and the trade off before you ever get to a vote in the Senate. While the house doesn’t have that final say on ratification of a treaty, they do have a loud voice and, of course, the house is democratically controlled now. A little more balanced, if you will.
On interest rates, the Fed interest rate policy shouldn’t be impacted by the midterm elections. It wasn’t the election that was driving the interest rate increases, it was the warmth of the economy. I won’t even use the firm heat of the economy. It was the warmth, the economy was warming up and as a result, the Feds are using that interest rate policy and the the midterm election should have absolutely no impact. Evidence of that will be the meetings that conclude today and the anticipation is, there will be no increase as of today’s meeting. Most likely if there is going to be another increase before the end of the year, it’s anticipated to be in December. Just before the end of the year.
 
Inflation. Of course, CPI is still above or at, right at 2%. So that’s in line with the Fed guidelines and those guidelines are the ones they’re using to still call for the interest rate adjustment. That’s the reason we continue to anticipate that. If that inflation heats up, we suddenly start getting to 3 and 4% especially in the wages. I think you can see maybe a more rapid increase in Fed interest rates. GDP and jobs. GDP for the third quarter was down to 3.5%. That’s a fun state to make. Down to 3.5. I have to explain it. It was 4.2 in the second quarter and the main driver was consumer spending. We saw the change in the second quarter in withholding and the dollars coming out of paychecks due to the change in the tax law. As a result, there was more money in the paycheck, therefore, more consumer spending.
 
In the third quarter that wasn’t there and so you saw the slight downturn. But still, I don’t know of too many economies who wouldn’t be doing back flips and somersaults with a 3.5% GDP. Unemployment, I mentioned earlier, -4 down to 3.7. Technically, as I remember from my economics 101 or 201 class back at JU, that is technically full employment. The challenge is finding employees with talent and experience. We have been very blessed and fortunate here at Gunn Chamberlain, we’ve added a number of additional employees over the last few months. We have been able to find that talent and experience. Some very strong people. But that’s not the case around the industry, it’s not the case around the country.
 
We’re seeing that wage inflation beginning but it’s not happening at a rate you might expect. You might expect we’d be seeing those 4 and 5% around the country increases, we’re just not seeing that and with the 2% inflation, you’re going to see that hold but not at a dramatically rapid rate as you might expect. Tax reform. I talked tax reform for the last 11 months to the point that I’m challenged on talking about tax reform. But I couldn’t help but talk about what we were referring to as tax reform 2.0. It didn’t look like we would get anything from the House Ways and Means Committee coming out in 2018. But with the new Democratic Congress coming in, we anticipate that we will see some corrections, some tweaking, some modifications coming out in 2019.
It of course starts now with the fact that come January, we will have the Democratic old House Ways and Means Committee. Richie Neal is most likely going to be the chairman and Richie is a Democrat from Massachusetts. To talk about tax reform for just a moment, you may remember what we refer to as the SALT limitations, that’s called state and local tax limitations. The tax act placed a ceiling on those of $10,000 and, of course, that becomes a lost or major lost deduction for states that have high state income taxes.
 
Massachusetts is one of those states. So it would not surprise me at all to see the SALT ceiling of $10,000 be addressed very rapidly once the Democrats control the House Ways and Means Committee. That’s a ceiling that does impact the middle-class tax payer or what’s defined as the middle-class tax payer. So we think some of the primary targets that the House Ways and Means Committee will come with are energy credits to bring some of those back, middle-class tax cuts because that was part of the platform that they were running on for this midterm election and addressing the SALT ceiling.
 
In looking at the result of the election and historically when you have divided houses, the general result is gridlock. Believe it or not, gridlock is actually good for the market. You got to ask yourself, why is that? Well, keep in mind the market does not like uncertainty. So if nothing happens, nothing is uncertain. There are possible targets that have already been thrown out there are campaign reform. Unfortunately, my birth certificate says I have participated in a lot of elections and I think I have heard about campaign reform since the very first time I was eligible to vote back in 1976. The amount of campaign reform that I have seen since 1976 is virtually nil.
 
So there will be a lot of rhetoric on campaign reform early in 2019 and then of course as we get into the presidential campaign and the 2020 election. That campaign started yesterday morning and it will continue. While it will be a target, I’m going to go on the hook and say, with the divided house, nothing will get done. Clean energy. We may see some effort in there. With the Democratic controlled house, you would expect that clean energy would be one of their priorities. I’m not sure what we will see in that area but there may be some activity there.
There’s no question the number one item of interest in the midterm election was healthcare. I noted all aspects because it’s not just Medicare, it’s not just Medicaid, it’s the high cost of prescription drugs, it is the high cost of healthcare, it is pre-existing conditions. There are a number of areas in the healthcare area. We see there again there will be a lot of activity but the ability with the divided house to make sweeping changes is probably minimal. But there will be some tweaking that will happen.
 
Impeachment. Can’t believe I listed that. But there’s a lot of conversation about impeachment. I’m going to show you in just a minute where that could get to be very interesting based on some possible scenarios in the house. And of course, infrastructure. I don’t think anyone has a question that the infrastructure in the US is decaying, our highway system. Everything is in need of just constant maintenance, repair and improvement. So we generally see with a democratic controlled house that there is a push for improved infrastructure. Some of you are saying, that sounds like pork. Well, yeah. Maybe it’s pork, maybe it’s infrastructure improvement, hard to call. But look for some activity is about to be one of the targets in the house.
 
Some possible scenarios that we may see in the house, obviously, Nancy Pelosi as speaker. It looks like in the last 48 hours of so, she and President Trump have been making nice. Have been talking about bipartisanship, have been talking about working together and that always seems to be the case immediately following the election and at the State of the Union addresses. Then what happens the other 364 or 363 days is yet to be seen. Jerry Nadler is anticipated on the Judiciary Committee. Will there be impeachment proceedings from the Judiciary Committee? Adam Schiff from the Intelligence Committee.
 
Trump in Russia. I wish they would either step forward and say, this is real, this is not real but finish that investigation and put the topic to bed because the market is not enthralled with good news, bad news on every other day. Last but not least, the potential for Maxine Waters as the Financial Service Committee oversight. She has, of course, a history of being much stronger or I should say much more conservative in her oversight of the banking, insurance and securities industries. She was not happy with the delay of the fiduciary rule and so we may see the fiduciary rule and that conversation come back very quickly. So interesting questions on that divided house.
 
What about the Senate? Well, the Senate, I apologize for this but I see nothing new. Republicans are waiting out the next two years. The Republican Party is trying to figure out how do they come up with a candidate to replace Donald Trump who is not your traditional Republican. The Democrats are trying to figure out how do they come up with a candidate to replace Donald Trump, and Donald Trump is actively trying to figure out how to squash either one of the two possibilities. So it will be fun to watch. Heck to ride but the next seven hundred and thirty-something days will be very interesting to say the least. Keep in mind that’s uncertainty, market doesn’t like that. So this quiet time for this next year or so could be nice.
 
So what’s our watch list? Let me drop back one second before I move forward on the watch list. One of the things you did not see me address was the I-word and that’s immigration. Neither of the parties wanted to address immigration issues in their post-election presentations and it will be very interesting to see how this country addresses that in the next two years. So it just does not seem to be a priority. Might become a priority in the coming days as the group of people from south america reach the US border. We’ll see blips and blurbs but as far as the legal aspect of creating legislation, neither party seems to step up and address that.
 
So our watch list is home sales. This one is the one that is getting a lot of attention because it’s starting to show some trends that are not favorable. We’ve seen seasonally adjusted declined to a four and a half year low on existing home sales. We’re going back to 2014. Part of that is rising mortgage interest rates. Mortgage rates are holding about 4.5 on a 30-year fixed. But as the Feds raise interest rates, the 10-year Treasury, which is really the mirror for mortgage rates will continue to rise. We have the continuing question of, has the market absorbed the foreclosure vacancies from the Great Recession? Real question marks on the home sales and that’s my number one in here both alphabetically and thought process because that’s one to watch.
 
Inflation, of course, it’s holding at 1.9, call it 2%. That’s good. It’s a nice thing to watch, we’ll continue to monitor. Jobs. Impactors are immigration. Can we bring in skilled labor through an immigration process on a more rapid basis. What are the skill sets? What’s the technology? The baby boomers are messing up the statistics because the baby boomers are retiring or semi-retiring or not retiring at all. We’re seeing the demographic of the labor force continue to mature and it’s a result of baby boomers not leaving the workforce at age 65 as there was once that line in the sand. And age 62 as well.
 
Profits. now that the tax reform is settled in, will profit growth continue at a similar rate? Well, probably not. But it may continue at a very good rate. So monitoring that of course. Interest rates, of course, one more quarter of a point bump for 2018 and look for one possibly early 2019. All are going to depend on what happens with jobs and inflation. The risk, the risks are everywhere and the media does a marvelous job of reminding us. So we will continue to monitor the risks. So what do you do? Investing in uncertain times. This is the type of thing I was reflecting when I was writing this.
 
I was trying to think, when was there not, pardon for the double negative, not uncertain times? When were there certain times? As I look back through history, especially modern history, we look at the market from the early ’70s forward, there’s always uncertainty. So we will never reach that point of totally certain times, but we have memories where we forget that there was uncertainty even during positive periods in the market. My encouragement to you is to buy companies, not headlines. I’d love to be the purveyor of that knowledge originally but not. Of course, that comes from Warren Buffett. The idea is that it doesn’t matter what the current headlines are, you’re looking at company that has a product or a service that people believe they cannot live without.
 
I’ll point to the communications industry, the fact that we’ve got 30 people sitting here on a phone call/video screen. Will this change? Yes, it will. But it won’t go away. Communication won’t go away. Being an investor, not a trader. I defined those early in the presentation today. If you need the money to spend it within the next year or two, you really shouldn’t be in the market with it anyway. That money needs to be secure away from market fluctuation, if you know you need those dollars. Things that we look at when somebody’s got a tuition payment or a wedding coming up. You keep that out of the market, keep that in cash because you’re going to be may be caught in an October with a very unpleasant month.
 
Think independently. Cramer vs Kramer. One of these guys appears on MSNBC and the other one appears on sub-channel reruns. Watch the guy who makes you laugh not the guy who is paid to entertain you about finances. Avoid emotional decisions. One of those October things, oh my gosh, the elections coming up. If so-and-so wins, I think this is going to be bad, this is going to be good. Look at the underlying economics, the solid statistics on it. I mentioned earlier, diversify, diversify, diversify. You cannot diversify enough. I’ll show you a chart in a minute on that. And of course, monitor your portfolio regularly. Ask yourself, would I buy this company again today? Because that’s the important thing. Do I think this company is going to go well in the coming years? Those are the questions you’re asking about each holding in your portfolio.
 
Performance rotations. I know this is a busy chart. I look at this and it reminds me of the periodic table that I got in chemistry class back in 10th grade. Scares me to death but then I break it down and basically what it shows, is if you look at a blended portfolio that’s about 60% large cap, 40% bonds, you stay in that mid-range. You don’t win every year but you end up with a solid return relative. They’re trying to pick the winner in any given year because it’s not … It isn’t very frequent that last year’s winner is this year’s winner as well, and many times last year’s winner could be this year’s dog. A good example is I’ll go to the ’17 verses ’18 column and we’ll look at emerging market stocks who had a great time in ’17 and now are just dying in 2018. Keep in mind, it comes and goes.
 
The outlook of the business cycle. To recap, the US is between the mid and the late phase and the global economy expansion is there, but the drivers of future growth I think have peaked. We’re looking at the the time that we’re in that more mature phase. The risk, of course, monetary policy with the Feds, trade policy out of the White House. We’re going to contribute to a totally mixed effect on the outlook. The nice thing about tariffs is you don’t have to worry about what the president is going to say because you just don’t know. Will come up with something new on a given day, and if you know his pattern and watch his pattern and go back to the art of the deal, it’s throw a 10 pound out there when you’re expecting to only get a 5. So it’s just that negotiation, that’s his management style.
 
China’s uncertain cyclical outlook is out there. Is there a slowdown? Was it temporary? Has it been recovered? And the European markets sizable dollar denominated debts. There’s a lot over there. The dollar continues to increase, will they be able to to handle that? So our current environment wants small asset allocation tilts, stay the course, look to those industries that continue to be strong such as communications, the financial areas because of the rising interest rates, and realize that there’s a huge divergence between the US and the rest of the world. So that presents certain relative opportunities and that’s one of the reasons why the tilt to US stocks versus international stocks continues to be strong.
So what do we look for? Obviously, we feel that as CPA financial consultants, we’re focused on working with clients for long-term wealth accumulation and planning. The reason for this seminar in itself. We want to guide people to gain financial independence, properly diversify their portfolio, maximize the portfolio efficiency and avoid taxes. I have yet to have the client who comes in and says, I want to pay more taxes both on income and at death and to, of course, beat inflation. So at this point, I would like to address questions. I don’t have one in the chat yet but I see somebody’s writing.
 
One of the questions that was early is, is it time to sell stocks before the year is over? I want to pay off for mortgage and equity line that has risen to 5%. I don’t know if it’s deductible for income taxes. How can I do that with the least taxation? Well, in looking at any investment, whether the investment is having a mortgage or being into the market, you want to look at the level of risk that you’re taking and the cost of the borrowing. In other words, if you have a mortgage that costs you, let’s use 3% as a relative number, that you refinanced a few years back. And you’re in the market and you look at your dividend portfolio and your dividends may be paying you 4.5 or 5%, you’re deducting one, your interest, it’s your top interest rate and you’re paying taxes on the dividends at a favorable interest rate, possibly 0 or possibly 15%. So you want to weigh those out and talk that specifically and quantitatively with your financial adviser here at the firm.
 
How do I stop losing money in the market? Well, again we’re back to diversify and we’re back to riding through. If you look at the market, it has always recovered, it’s always gone up. Going through that is never fun but that’s all part of the normal process. What is the outlook for owning rental property? Excellent question, unusual. Rental property, of course, is one of those things that if you are able to maintain it and provide the management for it, traditionally our clients who do that fair very well in the rental market. If you’re having to pay retail to do repairs or improvements to the property, you may not do quite as well on that property. But everybody that does rental property investing tells me you make your profit the day that you buy it, not the day you sell it.
 
So it’s a case of buying right, a good stable property. The interest rates are still favorable in that area, the depreciation deduction is still strong. 27 and a half years on residential, 39 years on commercial. So rental property can be a viable option for you and with the slowdown of new home construction, that may be something that would be favorable as we move forward. Solid asset and if inflation comes into play, that’s another favorable for you. I’ve got a question from Michael Scott. What do you feel about bonds right now? As a result of a bonds, you have to consider potential for rising interest rates. With rising interest rates, as the rate goes up, the value of the bond declines.
 
So if you do a short-term bond, you would anticipate that it would mature very soon and so you’re not as concerned about interest rate fluctuations. With a long-term bond, you have to be very cautious because as interest rates do rise, the value goes down. So if you want to take advantage of rising interest rates, do short-term maturities on your bond so when they mature, you’re hopefully reinvesting them at a higher yield. If there’s something out there that you’re comfortable with its yield and its maturity, and you’re not concerned because you’re going to hold it till maturity, then go right ahead. Bonds can be a very viable alternative for you. Well, thank you so much for being with us today. All the best and a Happy Thanksgiving.