4th Quarter 2019

Kreitler Financial:

This fall, investors certainly have a lot to be pleased with.US markets continued their winning streak, with the S&P 500 large company index up more than 20% through the end of September. The US led the rest of the world, where concerns about soft growth weighed on equity markets. Even so, foreign markets represented in the MSCI EAFE rose more than 13%. In a somewhat rare event, bond markets rallied strongly at the same time. Synchronized gains of this type are unusual.


Quarter Market Review-YTD as of September 30, 2019

Market Index

YTD Return

Bloomberg Barclays US Aggregate Bond Index


S&P 500 Composite Index


Russell 2000 Index




MSCI EM (Emerging Markets) Index


*Source:  RJ Quarterly Market Review 3Q 2019


Yet most people we talk with are not as cheerful as might be expected given this good portfolio news. It’s easy to see why. The trade war and tariff disputes continue with China. Brexit remains unresolved. The House Democrats began proceedings to impeach a Republican President, and tensions are building. These are among the issues creating uncertainty and weighing on investors, consumers, and businesses. If you whisper about economic problems enough, the whispers can eventually make those problems become a reality. 

Making Sense of It All

It is useful to step back from the daily news for some perspective. We see recent events as fitting into several long-term themes, including:

Theme 1: The Rise of Populism

In many countries, electorates unhappy with the recovery after the 2008 Financial Crisis took action at the ballot box. In the US, this propelled Donald Trump to the presidency over members of the political establishment. Continuing dissatisfaction with the status quo and actions by Trump now give momentum to the progressive left as they prepare for the primary election in 2020.

In Britain, voters dissatisfied with the European Union voted for Brexit, and now the country’s lawmakers are locked in bitter disagreements over the plan.

In our view, the unresolved issues are large and difficult to solve. This makes it likely that political instability in the US and abroad will continue. It remains our top risk factor for the financial markets today, and it is impossible to predict accurately. 

Theme 2: US Shale Gas

New technologies in oil exploration and horizontal drilling are changing the world’s energy-supply landscape and geopolitics as we wrote in our 2015 First Quarter Newsletter:

The energy revolution in the United States has been underway for a number of years. As we have discussed over the past several years, two technologies created a new supply of oil and natural gas in the United States. Three dimensional seismic imaging allowed us to find shale oil and gas with great precision. Horizontal hydraulic fracturing (“fracking”) permitted us to extract it. This increase supply was bound to put downward pressure on energy prices.

In September 2018, the US became the largest oil producer in the world, and the US Energy Information Administration predicts we will be a net energy exporter by 2020. Diminished reliance on energy from overseas has significant geopolitical implications, one of which is to reduce the importance of US relationships in the Middle East.

This was evident in September when a drone attack on Saudi Arabia’s oil infrastructure shut down 50% of the kingdom’s oil production. In the past, the resulting energy shock would have rumbled through financial markets. This time, the financial markets shrugged off the news, because Saudi Arabia now accounts for only about 10% of global oil supplies. Energy prices quickly stabilized as the US and other producers filled the void.

As the Middle East becomes less strategically important, the US is pivoting away from commitments there. If the US and other powers withdraw, this will redraw the lines of power in the region. The human tragedy unfolding in Syria with the withdrawal of US troops from that country is one example.

Theme 3: The Rise of China

The trade war with China is a skirmish in a longer-term conflict. China is the second largest economy in the world and has a population of 1.4 billion. China wants to claim what it views as its rightful place leading the world, and it sees the US as an antagonist bent on preventing its rise. The “Belt and Road” initiative seeks to replace the US as the premier economic power in Asia. China’s military posturing in the Pacific seeks to challenge the US, whose presence for 70 years has guaranteed open trade routes to the rest of the world.

In the short term, the US has the upper hand due to its relative economic strength. Tariffs are causing pain in the US, which is evident in a slowing growth rate, but the impact on China has been greater. We expect that the tariff dispute will be partially resolved or put on the back burner as the US election approaches.

The long-term rivalry will continue, however. China’s more deliberate long-term strategy and patience will be an advantage, but it will need to contend with the issues of its aging population due to its former one-child policy, and how to maintain social order among a restive and growing middle class. The protests in Hong Kong are an example of these tensions. 

Financial Strategy Implications

Investors face a tough choice now that US debt markets have been bid up in price with very low interest rates (usually a sign of fear) at the same time that the stock markets have been bid up in price (usually a sign of optimism). What to do?

US stocks continue to flirt with their highs. From a longer-term perspective, they have been trading within a range for the last two years. As of the end of September, they were just a few percent higher than where they were in January 2018. Viewed this way, the huge selloff of December 2018 and the rally in 2019 were normal market swings.

Stocks can swing both up and down. Historically, markets have rallied as uncertainty is resolved. Not surprisingly, few people enjoy this type of volatility, but investors willing to tolerate it can capture the market’s long-term returns. Elections and geopolitics will cause jitters. Keep a long-term view.

Debt markets seem priced for a depression, with some $15 trillion in negative yielding bonds around the world. By this measure, the bond market is more pessimistic than it was even at the depths of the 2008 Financial Crisis.

It used to be said that the bond markets were the “smart money,” implying that stock investors were the patsies to be left holding the bag. Now, however, the largest participants in the bond market are governments. We have rarely seen governments be the best at capital allocation decisions. Take, for example, the period of the lowest interest rates in modern history. During this period, the private sector in America refinanced their mortgages and corporate debt to lock in very low long-term rates. Meanwhile, the Treasury issued massive amounts of two-year bonds, which subjected the US to the risk of rising interest rates increasing the nation’s debt burden.

The 10-year US Treasury yields were only 1.7% as of September 30. Bonds might provide a haven from short-term stock market swings, but the price of this safety is that investors have to lock in an interest rate for 10 years, which may be eroded by inflation. Investors in diversified portfolios still need bonds to provide portfolio stability and liquidity, but they need to adjust their expectations for future returns from those bonds.

The best way to manage uncertainty is to develop and stick to a long-term strategy. Investors should not allow emotion or the day-to-day news to derail their plans. They should expect and be prepared for continued market swings during uncertain times. A diversified portfolio needs to have an asset allocation balancing the desire for growth (holdings of stocks, real estate, etc.) with the need for stability and cash flow (bonds, cash). Having a portfolio risk that you are comfortable with and sufficient cash flow (liquidity) lets you ride through uncertain times to capture the market’s long-term rewards. 

Happenings at Kreitler Financial

Charlie Kreitler was named to the Raymond James Chairman’s Council for 2020 and is in the top 1% of RJFS advisors in terms of productionˡ. We appreciate our clients continued trust in us and the opportunity to serve them.

Investing in personal growth is one of our core beliefs, and we had a busy quarter for professional development. Jake Ness, Financial Planner and Beau Tillinghast, Relationship Manager attended the eMoney Advisor Summit in Austin, TX. Charlie Kreitler traveled to Chicago for the Raymond James Chairman’s Council retreat.

Thank you to the many clients and friends who joined us to hear Dr. Mark Liponis present “Ultralongevity: The Seven Step Program for a Younger, Healthier You.” We certainly enjoyed it, and we hope you did too. Dr. Liponis shared some of his top tips for monitoring your ongoing health. If you are interested, please email us at Concierge@KreitlerFinancial.com and we would be happy to send you a copy.  Thank you to our sponsors PIMCO, T. Rowe Price, First Eagle, Eaton Vance, PGIM, Dimensional Fund Advisors BlackRock and Vanguard for helping to make this a successful event.

This is one of our favorite times of the year, and for our New England clients, it’s been an especially great fall. The weather has been mild, extending summer’s flowers right into the seasonal peak of the leaves. Bob just completed harvesting a record crop of honey from his bees.

Wishing you a happy autumn.

Charles F. Kreitler, CFP®
President, Kreitler Financial
Robert P. Kreitler, CFP®
Founding Partner, Kreitler Financial

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Charles and Robert Kreitler, CFP® and not necessarily those of Raymond James. The information has been obtained from sources considered reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Diversification and asset allocation do not ensure a profit or protect against a loss. Investing involves risk and investors may incur a profit or loss regardless of strategy selected. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Bloomberg Barclays US Aggregate Bond Index is a broad‐based flagship benchmark that measures the investment grade, US dollar‐denominated, fixed‐rate taxable bond market. The MSCI EAFE (Europe, Australasia, and Far East) is designed to measure developed market equity performance, excluding the United States & Canada. The EAFE consists of the country indices of 22 developed nations. The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. RJFS does not provide tax advice. You should discuss any tax matters with the appropriate professional. International investing involves special risks, including currency fluctuations, differing financial accounting standards, and possible political and economic volatility. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Their markets are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising. There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct.  Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor's results will vary. Past performance does not guarantee future results. No statement within this material should be construed as a recommendation to buy or sell a security or to provide investment advice. Holding investments for the long term does not ensure a profitable outcome. Rebalancing a non-retirement account could be a taxable event that may increase your tax liability. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.Raymond James is not affiliated with and does not endorse the opinions or services of Dr. Mark Liponis. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. Raymond James is not affiliated with PIMCO, T. Rowe Price, First Eagle, Eaton Vance, PGIM, Dimensional Fund Advisors, BlackRock, or Vanguard.

1 RJFS Chairman’s Council is based on overall team production for the year. Chairman’s Council membership is based mainly on prior fiscal year production. Requalification is required annually.