Commentary

  1. Time to drop the inflation target

    Low inflation is becoming a problem for Janet Yellen and the Federal Reserve. We could be forgiven for thinking low and steady inflation in a growing economy was a good thing. But it wasn’t supposed to be this way. Forecast models used at the Fed rely in part on something called the Phillips curve. Created by A.W.H. Phillips through his study of wage inflation and unemployment in the United Kingdom from 1861 to 1957, the curve was said to reflect a consistent inverse relationship. When unemployment was high, wages only increased slowly; when unemployment was low, wages rose rapidly. Fed forecasts have consistently predicted that, as our unemployment rates moved downward over the last several years, wage growth would accelerate, allowing them to reverse the significant easing implemented after 2008. Once we crossed the level they felt represented full employment, currently 4.6%, wage growth would accelerate. Problem is, wage growth has only grown slowly the entire way. Even with a 4.4% unemployment rate (it crossed 4.6% in March), wage growth is unchanged and inflation has actually declined. This isn’t what the models predicted. Furthermore, since that target was created in 2012, inflation has resisted 2% for most of the past five years. There are some economists claiming that the Phillips curve is all but dead. Some critics believe the 2% target was too high in the first place, that various global factors have had the effect of permanently lowering the long term trend of inflation. In any case, the Fed is approaching a fork in…

  2. Retirement Success Needs a Good Plan

    Benjamin Franklin is supposed to have once said, “If you fail to plan, you are planning to fail.” When we want to get from here to there, leaving success to chance is a fool’s errand. The path to a successful retirement is long and winding. Creating a plan for your family is critical to anticipate and prepare for change, to measure your progress, and clarify roles and responsibilities. According to the Department of Labor, fewer than half of Americans have calculated, let alone simply thought about, how much they need for retirement. In 2014, 30% of private industry workers with access to a defined contribution plan (such as a 401k), did not participate. Keep in mind that the average American spends 20 years in retirement, which means many spend much more time. They also suggest the following sensible steps, click here to find out more: 1. Start saving and keep saving. You should save for retirement with your first paycheck and continue to your last. Some experts recommend saving as much as 15 percent of each paycheck — after tax. 2. Figure out your retirement needs. Think about what you want to do. 3. Contribute to your employers retirement savings plan, as much as possible 4. Do you have a pension plan? Learn about it. 5. Consider basic investment principals such as inflation, diversification, compounding and the like. Educate yourself. 6. Don’t touch your retirement savings for anything other than retirement. 7. If your employer doesn’t offer a plan, ask them to start one. Be…

  3. A hand up

    Give a man a fish, and you feed him for a day. Teach a man to fish and feed him for a lifetime. Never definitively attributed to one source, the spirit of this proverb encapsulates the mission of Metro Lutheran Ministries (“MLM”), who want to offer a hand up, rather than a hand out. Started in 1971 by Kansas City Lutheran churches working in partnership, MLM helps people in need regardless of race, religion and nationality. Their goal is to provide clients a clear path to self-sufficiency through a continuum of care that immediately addresses short term stability and eventually helps clients achieve lasting stability. Immediate needs are met through food assistance programs offering breakfasts, sack lunches and monthly food distributions and community gardens. Other initiatives focus on housing security and stability to help clients live in dignity and safety. Longer term needs are addressed through income sufficiency programs designed to educate and empower families to better control their own finances and futures. Through offices in mid-town Kansas City, Kansas City-North and Wyandotte County, KS., MLM relies on over 2,000 volunteers that give over 17,000 hours of their time, a crucial component to meet the needs before them. Last year alone, they distributed 800 sack lunches to clients who came in for other types of assistance. They staffed and ran the Christmas Store, an annual effort to make Christmas a little merrier, helping more than 4,000 clients. They maintained the orchard and community gardens which produced over 2,400 pounds of healthy fare for the nearby…

  4. What will tomorrow bring

    “It was the best of times; it was the worst of times.” We make no claim for originality — that belongs to Charles Dickens, writing in the nineteenth century about an event, the French Revolution, that occurred in the eighteenth century. All that brings to mind an old cliche: “The more things change, the more they remain the same,” or even Dwight Eisenhower’s famous garbled quote: “Things are more like they are now than they ever have been.” The point of this verbal meandering? Simply that the world is always unsettled somewhere. Good and bad events are not mutually exclusive, they have gone on side by side for all of history. As investors, we watch events and consider how they will affect the economy, politics, and, most important, our portfolios. The truth is, we can only guess. We can make educated guesses based on history and experience, but, in the end, there is no certainty. That is why our focus is on earnings and growth. How should this uncertainty influence your investment decisions and instructions to your advisor? That depends, to a great extent, on your personality, your investing horizon, your goals, and the impact it has on your tolerance for risk. When Mitchell Capital is engaged, new clients create a set of investment guidelines, basically setting limits on the equity and fixed income components of their portfolios. These are the directives our managers will follow and serve as the guideposts for moving forward in an uncertain world. At their best, guidelines strip the emotion…

  5. A new airport – it is time

    The debate concerning what to do about Kansas City’s airport goes on. And on. Once the triple-horseshoe configuration at KCI seemed futuristic. It was convenient. It was architecturally outstanding. It was a landmark. Then things changed. Pre-boarding security was initiated weeks after the airport’s completion in 1972. This has led to the disruptive multi-gate security divisions and the resultant crowded passenger waiting areas with inadequate facilities and extremely limited concessions. Incoming passengers are forced to navigate these spaces through unmarked exits and milling passengers waiting to board. Concessionaires are not interested in serving the airport because there is no common waiting area beyond security where enough people gather to make operating viable. Airlines have adopted hub-and-spoke flight systems, eliminating Kansas City from the possibility of becoming a hub because of the difficulty of changing gates or terminals. The two operating terminals have become old and dilapidated, and remodeling them would be costly without resolving the basic problems. The third has been closed for lack of demand since 2014. This has all been obvious for years, as the city council has failed to state the issues clearly and dithered over architectural and financing issues while local infrequent fliers cling to the idea of curbside drop-off, ignoring the operational deficiencies. Regular fliers will recognize that KCI offers a poor welcome to the city, and that while some other airports have become endless construction sites, we have a chance to get it right. A new terminal will cost taxpayers nothing. It will either be privately financed as Burns…

  6. Brandon Reed Earns CFA®

    Brandon Reed, Equity Analyst at Mitchell Capital Management has earned the prestigious Chartered Financial Analyst® (CFA®) designation. The CFA charter, the most respected and recognized investment credential in the world, represents a tradition of upholding the highest standards of education and integrity in the investment profession. The charter is recognized globally by employers, investment professionals, and investors as the definitive standard by which to measure the competence, integrity, and dedication of serious investment professionals. Recipients of the CFA charter have successfully completed the CFA Program, a graduate-level, self-study curriculum and a series of three intensive examinations taken sequentially, which, in total, takes most candidates between two and five years. Candidate surveys report that preparation for the three exams typically requires at least 900 combined hours of study. The CFA Program, which is administered by CFA Institute, the global not-for-profit association of investment professionals, sets a standard that is acknowledged around the world for measuring the competence and integrity of financial analysts, portfolio managers, and investment advisers. Currently, more than 100,000 investment professionals in 135 countries and territories hold the CFA charter. The first CFA exam was administered in 1963. Due to the rigor of the program, only around one in five candidates who enroll in the CFA Program pass all three exams and meet the professional and ethical requirements to earn the charter. Earning the designation demonstrates mastery of the skills most needed for investment analysis and decision making in today’s fast-evolving global financial industry. Administered worldwide in English, the CFA Program is firmly grounded…

  7. A plan for economic growth

    On July 18, the Hoover Institute released a paper by four prominent economists, John Coogan, Glenn Hubbard, John Taylor and Kevin Warsh entitled “On the Prospects for Higher Economic Growth.” As you would expect, given the source, the paper outlines “conservative-minded” strategies advocated to produce economic growth: lower taxes, less regulation, rationalized entitlements and welfare, greater investment. The target indicated is 3 per cent annually versus current Congressional Budget Office projections of 1.8 per cent. With extensive statistics, the economists make the point that this combination of policy changes will promote economic growth by increasing employment, wages and productivity. You can find it here. The caveat to all this is contained in this quotation from the paper: “It is important to keep in mind that attaining 3 per cent annual GDP growth rate is based upon enactment and implementation of a package containing significant tax reform, regulatory reform, budget reform and monetary reform,” all of which requires leadership from Congress and the Federal Reserve. Given the current state of political division — pigheadedness? — the probability of all these things coming to pass is remote. Still, strong voices at the Fed advocating for them, as well as lightening banking regulation, should have an effect. There will be voluminous testimony before Congress and jawboning of its members. There will be pressure from business and financial groups, and, most of all, it will become clearer that these moves are necessary to boost the economy. While Republicans in the past have produced policy papers like the one above,…

  8. How to think about Risk

    We read a lot every day, from company financials to research reports to general interest publications. Occasionally we run across something that succinctly condenses a large topic to something much more manageable. The following link does just that on the topic of investing risk and reminds us that we have more control than we think. Click here to read the article. Please click here to view our disclosures.

  9. Social Security – Don’t count on it too much

    The following Bloomberg article offers an updated look at the real state of Social Security and reminds us to take control of our retirement savings. Click here for the Bloomberg article. Please click here to view our disclosures.

  10. Market Outlook – Q2 2017

    Equity and bond markets posted positive returns for the quarter, which were spread evenly throughout.  Longer interest rates ended slightly down, giving fixed income investors a small boost.  First quarter earnings reports revealed a 14% year-over-year improvement, the best in over five years.  Supporting these gains was the best European growth in seven years, particularly benefiting domestic companies with large international operations.  The range comprising that average is wide with Financials up 20%, and Tech up more than 17%, while Utilities were up 5% and Telecom was down 5%.  This also explains the large gap between the increase in earnings and our own GDP.  We are encouraged to see our two economies finally moving in the same direction again and this supports our expectation for earnings growth of 8-10% through year end. Among larger companies, revenue growth is picking up.  Using the S&P 500, average revenue growth over the last five years through Q1 2017 was 5.6%.  Over the final twelve months of that period it was 7.4%.  Since 2009 companies have better managed their expenses and bought back a great deal of their own equity, both of which contributed to rising earnings per share in the face of relatively flat revenue growth.  Increasing the revenue line provides a more direct and longer-lasting path to earnings growth and we believe this will continue for now.  Trading currently at 17.7x next years projected earnings, stocks remain reasonably priced. This should keep the stage set for continued equity appreciation through year-end, though perhaps at a slower pace…