Business Update:

Adam and his wife Amanda had their baby. Just kidding, April Fools!  We are not kidding when we say that their baby is due any minute. Adam will be taking some time off in the near future.

We can see the light at the end of the tunnel as far as tax preparation goes for our Affordable Family Office clients.  We will be filing extensions for anybody that has not provided us their information by April 1st.

On May 14th, we will be doing a “Lunch and Learn” at our Chicago office.  The topic discussed will be the most important things to consider when you update your financial plan.  Please email Patty at if you share this opportunity with your friends.

Also, our Affordable Family Office clients can expect to receive a financial plan update survey from us towards the end of April or the early part of May.

D3 In The News:

During Money Smart Week and in association with the Illinois Financial Planning Association, Don will be presenting with Terry Savage at the Harold Washington Library on April 20th at 12:00pm.  The topic covered will be questions to ask a financial planner. All of our clients are welcome to attend the event, and we encourage you to invite your friends.

In our effort to give back to the community, Adam and Don will be providing pro-bono, 20 minute financial counseling sessions for  senior citizens during the Age Well DuPage event at the College of DuPage on May 16th.

Adam will be presenting to graduating medical students at the University of Illinois at Chicago from 12-1pm on April 14th, 2015.

Market Insight:

It is clear the U.S. markets are at an inflection point. Trading volatility (up and down market movements) has picked up, the U.S. markets have run into resistance generating new highs, and from a technical viewpoint, we have had an absence of two day rallies.  Additionally, the U.S. economy is projected to generate the highest GDP growth in 4 years; so, that begs the question of why the U.S markets are at an inflection point.

Two major trends that have an impact on equity valuation are converging.  The first trend deals with the rising dollar and its impact on corporate earnings. The second trend is the threat of the Federal Reserve raising interest rates and potentially increasing the discount rate used to value equities.

Here is a fairly concise explanation from Reuters News Service. “The dollar’s gain of 22 percent in the past 12 months against a basket of major currencies has landed a double whammy on U.S. companies with big sales abroad. Revenue and earnings from foreign markets are worth less when translated into dollars. Additionally, the costs for these companies become relatively less competitive against rivals producing in countries with declining currencies.

Dollar moves of this magnitude in the past have resulted in what Bank of America/Merrill Lynch strategists term an “earnings recession,” which is generally defined as at least two successive quarters of declining earnings from the year-earlier quarters. The brokerage firm says that a 25 percent gain in the U.S. dollar in a 12-month period has historically coincided with a 10 percent decline in the market’s earnings per share.

That hasn’t happened yet – but the downward trend is clear. Wall Street analysts currently estimate earnings growth of 1.3 percent for 2015, down from a forecast of 8.1 percent at the beginning of the year, according to Thomson Reuters data. The S&P 500’s earnings per share are expected to drop 3.1 percent in the first quarter and 0.7 percent in the second quarter before recovering modestly in the second-half of the year.

Nearly one-fifth of S&P 500 companies have warned on earnings for the first quarter, with at least 49 companies mentioning the effects of the dollar on results, according to Thomson Reuters

When earnings growth slows or declines, equity valuations tend to stretch.  Add on top of that the potential for higher interest rates in the United States.  Fundamental valuation models of equities use a discount rate (interest rate) to calculate the present value of stocks. Just like a lump sum pension analysis, the higher the discount rate (interest rate), the lower the present value.  If interest rates rise and corporate earnings growth slows or declines, the end result is a future decline in equity prices all else being the same.

The reason for this inflection point is the fact that the impact of the rising dollar on corporate earnings is unknown and the impact of the Federal Reserve raising interest rates is still just a threat. As we all know, the markets dislike uncertainty, and both of these impacts are uncertain.

Investment Strategy:

It is often said in sports that the best offense is a good defense. A well-balanced, diversified portfolio is the best offense to uncertainty because it is the most efficient way to mediate risk.  We are very comfortable with our clients’ asset allocation models, which contain what we believe are appropriate allocations to alternative and international asset classes to help diversify risk.

Once tax season is past us, we will move into financial plan update season.  With financial plan updates, we update the required rate of return (RRR) that your portfolios need to earn to achieve the goals of your financial plan.  One of our goals is to educate you so that you know the minimum level of risk that you need to take with your investments.

As we said last month, we believe our focus on financial planning goals and portfolio risk management are the keys to long term financial planning success.  If any of your goals change or your ability to tolerate risk changes because of altering circumstances, please let us know.

Last Thoughts:

Have fun on April Fool’s Day and don’t forget to vote next week.