Cyclical Outlook “What Lies Beneath”

Posted on September 30, 2016 by Sapling Wealth

PIMCO just published their “Cyclical Outlook – What Lies Beneath “, a capital markets overview for the coming 6-12 months.  This slightly cautious piece supports their “Stable, But Not Secure” secular theme.  This world class investment manager is widely respective for performance and deftly navigating the twists and turns in the capital markets.

Generally, the PIMCO outlook mirrors our own posture on many issues, such as monetary policy, valuation risks, event risks and the possibility for positive fiscal surprises.

A well written 8-page read.

What Lies Beneath

Market Strategy 2016-2017

Posted on September 30, 2016 by Sapling Wealth

Market Strategy 2016-2017

We are pleased to announce the publication of our annual “Market Strategy 2016-2017” publication, where we go into depth on capital market opportunities, risks and investment strategies.  This publication (which was also published on Seeking Alpha in a shorter version) provides the basis for our recommendations to clients regarding the risk and reward in the capital markets.

Outlook Thesis

Our cautious investment stance is based on our opinion that the recent gains in the equity markets mask long-term risks.   The recent strong performance of the financial markets in the face of lackluster economic growth and political uncertainties have been impressive. Accommodative monetary policy, which has been the major pillar of support, will be less effective in the future. There may be room for new political leaders to maneuver to a negotiated compromise on select bi-partisan issues. However, we see many risks that could threaten financial asset valuation multiples. Our opinion is that in the medium term (1-3 years) there will be a reckoning in the financial markets for the years of lax monetary policy and subsequent high financial asset valuations. Therefore, we are recommending moderate near-term risk taking (with stock picking emphasis) for our clients, with an eye towards a more conservative, medium- & long-term investment posture.

We believe that the consensus view supports:

  • A stable, but tepid, world economic outlook;
  • Earnings growth in US
  • US monetary policy tightening, but only incrementally
  • Political legislative achievement will be low;
  • No threat big enough to derail high valuation multiples;

We differ from consensus on politics and threats:

  • Potential of political compromise in the next 12-18 months;
  • Plenty of risks that keep us up at night;

For more, download from this hyperlink.

Market Strategy 2016-2017 (PDF)

Individual Implications

Please note that specific client objectives and time frames need to be taken into account before implementing individual investment strategies.  If you have any questions about how our opinions may affect your own personal investment strategies, please contact us at 206-281-4055.


Where You Stand Depends On Where You Sit

Posted on April 28, 2016 by Sapling Wealth

The political axiom, “Where you stand depends on where you sit”, refers to people’s predisposed political leanings that are driven by their self-interests.   That is, where you stand on issues (or support politically) often is driven by how policies directly affect you personally (e.g., individuals who care about lowering Federal Estate taxes generally have large estates that would be taxed heavily under that rubric.)  Sometimes, people support higher tax rates (Warren Buffett) even though they would economically stand to lose under a different (higher) tax regimen.

Have you ever wondered how much of your political leanings are driven by self-interest or philosophy?  Play the following game, called Fiscal Ship.  It was developed by the Brookings Institution along with various other centrist policy organizations.  Generally, it outlines the trade offs in attempting to reduce the Federal deficit (or at least mitigating its growth).  Which issues have the most economic value?  Which issues really don’t move the meter?  How difficult is it to prioritize?

Fiscal Ship.Org

Generally, it is our opinion that thoughtful planning yields long term results.  Policies forged by crisis can have poor consequences.  Looking forward, we see fiscal troubles ahead, both in the United States and the world, many of which can be avoided with sound thinking.

Too Much Student Debt Can Hurt

Posted on February 8, 2016 by Sapling Wealth

We believe that having too much student debt can hurt the individual’s ability to create wealth & hamper retirement prospects.  While much has been published on the virtues of education – higher long term incomes, lower unemployment, higher job satisfaction – much less has been written on understanding the cost of student loans.

We see the costs of student loans coming in three main areas: (1) the primary burden of paying back what was borrowed (with interest); (2) the opportunity cost of redeploying that capital towards other types of consumption (e.g. mortgage payments on a home); (3) more constrained wealth creation and retirement prospects for the individual incurring the debt.  In addition, more globally, unrestrained access to the educational system supports much higher inflation for education services.

We recommend that individual students (and their parental guarantors) have some common sense about the cost of education BEFORE incurring high debt loads.  Each student that borrows to pay for college should have a strong sense of what their job prospects are going to be after school is finished and how long it will take to repay the student loans.  Too often, these important details are not even considered.

Simply put, there are many ways to gain access to educational opportunities.  Many of them are not cost effective.  Getting a degree from an expensive four year college makes the most economic sense if the job opportunities at the end of school support the decision.  Otherwise, it would be much less expensive to get an equivalent education via night school or community college.

Dedicating huge resources to an education that is unfocused and lacking direction, in our eyes, is a disservice to both the individual (burdensome debt levels) and society (higher education inflation).



Weak Market Internals Concerning In Face of Potential Fed Rate Hikes

Posted on November 25, 2015 by Sapling Wealth

We believe that weak market internals are concerning in the face of potential Federal Reserve interest rate hikes.  We remain cautious on our outlook on the stock market, which is consistent with our 2015-2016 Investment Outlook published in the spring 2015.

It is our opinion that the stock market offers relatively narrow opportunities for investors and plenty of risks.  We highlight a recent graph (copied from John Hussman’s excellent article on Seeking Alpha here) which points to the relative importance of a few large capitalization stocks that have been driving the returns on the capitalization weighted S&P 500 index.  When compared to the Value Line Arithmetic Average (an index that is not capitalization weighted), you can see nearly an 8.0 percentage point difference in YTD returns.  Said another way, increasingly, the performance of the stock market averages is driven by a handful of large capitalization stocks, such as Amazon, Facebook, Apple and Netflix.  We view this recent positive performance (driven by narrow breadth) in the stock market rally as a sign of weakness.

Layered upon these poor market indicators looms the possibility of a Federal Reserve rate hike.  We expect the Federal Reserve to raise rates in December, however, we remain cautious on the outlook for the stock market and risk assets in this environment.  We believe that the market internals must improve for the stock market to go higher, i.e., the rally needs to become more broad based.  Otherwise, rising US interest rates (particularly in the face of easing monetary policy abroad) will drive dollar currency appreciation and a continued headwinds for earnings.  Our orientation towards equity investing is to lean towards more active (stock picking) ideas vs. passive index investing.  Much more interesting to us are specialized fixed income securities, due to better risk adjusted return prospects.  We generally believe that investors should hedge currency exposure, where possible.

Consumer Spending Habits Shifting, But Generally Tracking Very Well

Posted on October 24, 2014 by Sapling Wealth

We remain optimistic on the US economy and the US consumer.  Our thesis is based on continued low interest rates,  rising financial markets and increasing rates of employment.  We believe that we may begin to see increases in wages, as labor markets tighten in the United States.  The US economy is driven by the consumer, which accounts for 70% of GDP.

In a recent video interview on Bloomberg’s Business News, Sarah Quinlan, Senior Vice President at MasterCard Advisors, says consumers are continuing to spend, but their spending habits include less “stuff” and more “experiences”.  This translates into more travel & restaurant spending and fewer items of clothing & online orders.  Therefore, just because there may be disappointing growth in some visible segments doesn’t mean overall consumer spending will decrease this year.  In fact, it is Quinlan’s perspective that overall, consumer spending will be +5.5% in the coming year, well above consensus +4.0% expectations.  MasterCard processes over 160 million transactions per hour, and therefore, her viewpoint is quite credible, from our perspective.

The investment implications: while there will definitely be pockets of disappointments, the economy is moving in the right direction.  In addition, there are several areas that will look to garner an increasing percentage of the consumer dollar (well above current expectations).  This typically results in superior investment performance and clients should re-orient their investment accounts accordingly.



Sapling Wealth Management, LLC is a registered investment adviser in the State of Washington.  The adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration.  Individualized responses to persons that involve either the effecting of transaction in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. 

Wealth Management: Market Strategy Published On Seeking Alpha

Posted on April 1, 2014 by Sapling Wealth

We are pleased to announce that a portion of our market strategy overview was recently published on Seeking Alpha, one of the largest and most respected financial research website.  We believe that the acceptance by the editor’s of Seeking Alpha is validation of the high quality, original internal research that we do for our clients. 

Seeking Alpha – Published March 27, 2014

Part of what sets Sapling Wealth Management apart from other advisors is that we conduct our own research internally, define the investment implications and closely weave it into our investment recommendations to our clients.  Other firms who are not as close to the research product can often be late to realize the full investment implications when the facts change.



Sapling Wealth Management, LLC is a registered investment adviser in the State of Washington.  The adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration.  Individualized responses to persons that involve either the effecting of transaction in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. 

Wealth Managment: Market Outlook 2014-2015

Posted on March 25, 2014 by Sapling Wealth

We have just finished writing our annual market outlook, which serves as our investment guidepost for implementing wealth management strategies. 

This year we believe the key to the equity market appreciation is EPS growth.  The support for our base case, where we project +11% EPS growth for both 2014 & 2015, is an accelerating world economy, increased profit margins and share buybacks.  Generally, we are very optimistic and see the equity markets as offering the best risk/return value.  Fixed income strategies, an important portfolio diversifier, must be implemented opportunistically this year.  Read on for more information. 

Market Strategy 2014-2015 (PDF)



Sapling Wealth Management, LLC is a registered investment adviser in the State of Washington.  The adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration.  Individualized responses to persons that involve either the effecting of transaction in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption. 

Wealth Management Strategies: Reasons To Be Cheerful

Posted on February 12, 2014 by Sapling Wealth

It is easy for wealth management strategies to focus on the visible, negative risks in the capital markets; however we believe, to quote an old Ian Dury and the Blockheads song, there are reasons to be cheerful.  When this song was released in the late 70s, unemployment was high and the economy was punk.  Analysts were predicting job decreases in several important sectors.  In many cases, the analysis was spot on, as the bulk of the new jobs that were created in the 1980s didn’t even have a classification category a decade earlier (computer programmer, etc.).  Our point is that there is a positive baseline in the economy that is very difficult to predict and forecast, but there just needs to be a little bit of faith.  This is a legitimate and  important part of anyone’s investment strategy calculus. 

A recent article we read in Motley Fool (a financial blog) touches on this point, where it cites 50 reasons to be upbeat.  These largely tie to looking at things from the perspective of the last 25, 50 or 100 years, which has seen a significant improvement in quality of life.  Despite the recent ups and downs in the economy, it is important to note the long term trend is decidedly up. 

50 Reasons We’re Living Through the Greatest Period

These reasons do not give investors an excuse to put their heads in the sand or blindly march forward, but serve as a reality check that we are all pretty well off relative to the rest of the world and our ancestors’ lives.  So in times when all looks bleak, look up, there are always reasons to be cheerful. 



Wealth Management: Tax Planning Strategies 2014

Posted on February 3, 2014 by Sapling Wealth

When wealth management clients ask us for our best tax planning strategies in 2014, we advise them that this is an area they need to be well versed. 

Our overview of this area will touch on these key topics, and later blogs will address each area specifically.  Our Top 5 Tax Related Topics:

Dividend and Capital Gain Taxes: After a heady run in the equity markets, many individuals are sitting on capital gains relative to their positions a year ago.  However, taxes for most have gone up.  If you are in the 10 & 15% Federal tax bracket, not too much has changed.  For those in tax brackets 25% and above are staring at dramatically higher taxes. 

Medicare & ACA Surtax:  The Medicare 3.8% surtax is now tied to unindexed income levels and there will be additional taxes on income, dividends and capital gains to raise revenues to pay for the Affordable Care Act (Obamacare).    There are certain investments that generate income that is excluded from this calculations, which investors will want to keep in mind.

IRA Contribution & Income Limits:  While the contribution limits for IRA & 401(k) retirement plans have stayed the same for 2014, we believe there are certain strategies which now are more attractive for individuals to take advantage of this tax advantaged retirement program. 

Retirement Programs for Lower Income Generators:  MyRA (a new program introduced by President Obama in the State of Union address) and Saver’s Credits are interesting ways for some folks to save for retirement.  These programs are particularly well suited for people just starting their careers. 

Estate & Gift Taxes:  The upper limit on estate tax exemptions is now $5.34 million per person (over $10 million per couple).  This figure is well above the net worth for most people and eliminates some of the tax reasons for estate planning.  However, we strongly urge our clients not to stop planning for the future, as taxes are just one of the reasons why people create estate plans.  There are also key carve out areas, outside of the $14,000 annual exclusion that people can utilize.