1,140 Economists Warn Trump Not To Make Great Depression Mistakes

More than 1,100 economists, including 14 Nobel Prize winners, have written a letter to President Donald Trump, along with Congress, warning against making the same trade mistakes that helped plunge America into the Great Depression.

The 1,140 economists sent the letter Thursday amid a mounting international trade battle. Trump has imposed a number of tariffs, including on steel and aluminum imports, but has granted temporary reprieves to the European Union, Australia and a handful of other countries.

The letter was intended to mirror a similar warning sent in 1930 that went unheeded.

“In 1930, 1,028 economists urged Congress to reject the protectionist Smoot-Hawley Tariff Act,” the authors wrote, citing a trade law that many economists are convinced deepened the Great Depression.

Read More: https://www.huffingtonpost.com/entry/economists-warn-trump-great-depression_us_5aebbb22e4b041fd2d24b003

Another Tariff, Another Downturn

Last week, stocks went on sale again on the heels of yet another erratic policy declaration coming from the White House.

This follows a by-now-familiar pattern: The Trump Administration announces something —this time “tariffs on Chinese imports” with an estimated value of $60 billion a year—without an overall policy program. Traders fear that there will be retaliation against American products sold abroad and put a lower value on the large multinational companies that account for most exports and make up most of the major indexes.

The last time this happened, the tariffs involved steel and aluminum, and the panicked sellers later discovered that the impact on global trade was actually quite small, due to negotiated exemptions for major steel producing nations like Canada and South Korea—plus the Eurozone and Mexico. This time around, the U.S. trade representative has 15 days to develop a list of specific Chinese products to slap the additional taxes onto, and there will be a public comment period before the threatened tariffs go into effect. China has announced that it is developing its own list, and as companies (and farmers) become aware of what is included in its reported $3 billion tariff package, they will lobby for exemptions which may turn this announcement into another tempest in a teapot.

Meanwhile, in the wake of the Cambridge Analytica scandal, admissions that private information on 50 million people had been pilfered, and up to 126 million Americans had seen posts by a Russian troll farm on its site, Facebook shares fell almost 10%, from 176.83 down to 159.39. This took the social media giant down from the 5th largest-capitalization company in the S&P 500 index to the 6th (behind Berkshire Hathaway)—dragging the index down even further.

What’s remarkable about this particular selloff over things that might or might not happen is that it came amid some very good news about the U.S. economy. Durable-goods orders jumped 3.1% in February, sales of newly-constructed homes were solid, and Atlanta Fed president Raphael Bostic announced that there were “upside risks” in GDP and employment. Translated, that means that the economy is looking too good to keep interest rates as lows they have been—which means this is a curious time to be selling out and heading for the investment sidelines. (So don’t!)






Protecting Yourself from the Equifax Hack

In the past few weeks I’ve fielded numerous questions from clients about the Equifax hack asking what to do about it. The best advice I can give you is to regularly monitor your bank and credit card accounts or pay for a service to do this for you. Best is to do it yourself! Your awareness of your own account activity and prompt action if/when anything is amiss is the best protection. Finding an old error or fraudulent transaction can be difficult to prove and fix. Quickly bringing an issue to the attention of your bank or credit card company will usually result in a speedy resolution in your favor.


What happened? From about mid-May to July 30, hackers ransacked vast troves of information at Equifax, one of the three big credit reporting companies. The breach, as you probably have read, potentially exposed about 143 million Americans’ personal information, including names, addresses, dates of birth and Social Security numbers. The hack stunned many people who became increasingly aware of their own vulnerability to the largely invisible financial system that we have come to depend on.


Since Equifax disclosed the breach, the company has lost over $4billion in market value. Subsequent investigations have begun to expose the company’s negligence. The bug exploited by hackers was “known and could have been fixed and patched, says Ted Schlein, a general partner at venture-capital firm Kleiner, Perkins. Meanwhile, three Equifax officials, including the company’s finance chief, sold a total of about $1.8 million in stock August 1 and 2, according to securities filings, selling their stock before the public announcement and drop in price. Equifax has said they didn’t know the about the breach at the time of the stock sales. This is unlikely, as the well-known cyber-investigations firm Mandiant was brought in officially on August 2.


Regardless of the company’s negligence, people want to know how to protect themselves from this and other potential cyber-vulnerabilities.


Awareness and monitoring of your bank and credit card accounts is key.

  1. Check your Credit Report – Here is a link to a free credit report. You can run this report annually and review (for free!) it to see if there is any activity you do not recognize. This could include opening a new account, applying for any type of credit, late payments or any other activity that does not look familiar. There are other services such as LifeLock.com, but they do charge a monthly fee. https://www.annualcreditreport.com/index.action
  2. Report any Suspicious Activity – If you see anything suspicious, contact the credit card or bank’s fraud department immediately. You are not responsible for charges made on a fraudulent card, or fraudulent activity on your card, but you must report the issue in a timely manner.
  3. Recovering – If you have been the victim of any type of fraudulent activity or identity theft, you can follow the steps outlined by the Federal Trade Commission in this useful Guide. https://www.identitytheft.gov/Assistant#
  4. Tax Season – It’s still too early to know if and how the data are exposed in the breach could be misused, but one concern is that identity thieves can use stolen Social Security numbers to file fraudulent tax returns and receive refunds. When people file their taxes, the IRS tells them their return has already been filed. One way to prevent this from happening is to file early. For more information, the IRS has published a Guide on tax fraud.https://www.irs.gov/newsroom/taxpayer-guide-to-identity-theft
  5. Freezing Your Credit – If you want to be more proactive, you can Freeze Your Credit temporarily and Set Up a Fraud Alert. When you freeze your credit, you set up a PIN on your credit accounts. Any use of your credit will require providing the PIN – information that the hackers will not have access to. A fraud alert can also be set so that credit card companies are required to verify your identity before opening any account. To set up the Freeze and the Alert, contact each of the credit bureaus using these phone numbers:

Equifax – 1-800-349-9960

Experian – 1-888-397-3742

TransUnion – 1-888-909-8872

  1. Equifax’s Identity Protection Program – I don’t recommend using Equifax’s Trusted ID program since this is the database that just got hacked. Providing them with additional information just isn’t a good idea. Furthermore, enrolling in this program may prevent you from participating in a class-action lawsuit.
  2. Monitor Your Accounts – While it is a convenience to have automated bill payment and other bank account management services, you must look at your bank and credit card accounts on a regular basis, review your transactions, and immediately report anything that is not familiar to you.
  3. Help Others – These processes are fairly simple and many require just a few short phone calls or online activities. But many people are just not good at doing these things. You may want to help some of your friends or family members to set up a couple of routine monitoring activities.

If you would like to know more about credit card fraud, you can download this Consumer Action Question and Answer Guide. [Create link to website, post document under Resources]

These days, it is important to be vigilant about your financial accounts. Taking some routine actions a few minutes a month is the best way to protect your ongoing financial security.


Can Volatility Predict Returns?

When investing in stocks, understanding the volatility of their returns can be an important ingredient to help investors maintain a disciplined approach. People invest their capital hoping to earn a rate of return above that of just holding cash, and there is ample evidence that capital markets have rewarded disciplined investors. For example, the exhibit below illustrates what investing $1 in 1926 into various asset classes would have translated to through the end of 2015. Nevertheless, returns can be negative for days, months, and even years. After such episodes, investors are frequently exposed to stories exclaiming what may cause the next financial crisis.

1. Eugene Fama and Kenneth French, “Q&A: Timing Volatility,” Fama/French Forum, December 19, 2008, www.dimensional.com/famafrench/questions-answers/qa-timing-volatility.aspx.

1. Monthly Growth of Wealth ($1), 1926–2015

Past performance is no guarantee of future results. Indices are not available for direct investment. Their performance does not reflect the expenses associated with the management of an actual portfolio. See Index Definitions in the Appendix for more information. US Small Cap Index is the CRSP 6−10 Index; US Large Cap Index is the S&P 500 Index; Long-Term Government Bonds Index is 20-year US government bonds; Treasury Bills are One-Month US Treasury bills; Inflation is the Consumer Price Index. CRSP data provided by the Center for Research in Security Prices, University of Chicago. Bonds, T-bills, and inflation data provided by Morningstar.

When volatility spikes, remaining disciplined can be even more challenging as pundits are quick to link volatility to any number of impending “crises” and to predict that short-term returns will be poor. See my blogpost on Coping with Market Volatility. Based on these predications, their advice for investors is often “sell now” to avoid these poor returns. But as Professor Eugene Fama points out, “The onset of high volatility should be associated with price declines that increase expected returns going forward (to compensate investors for the higher volatility).”1 That is, volatility often increases after a price decline, which may increase expected returns. So these pundits may be reflecting on what has already occurred, not what will occur. Do recent stock market volatility levels have statistically reliable information about future stock returns? We can examine historical data to see if there have been statistically reliable differences in average returns or equity premiums between more volatile and less volatile markets, if a strategy that attempts to avoid equities in times of high volatility adds value over a market portfolio, and if there is any relation between current volatility and subsequent returns.

A simple way to see if stock market volatility and returns are related is to look at average returns across different market environments. In Exhibit 2, we take monthly returns for the US equity market (represented by the Fama/French US Total Market Index) and break them up based on the previous month’s standard deviation (computed using daily stock market returns). Average returns in months when the previous month had higher volatility (75th percentile or above) were slightly higher than when the previous month had lower volatility (25th percentile or below). This conforms with the intuition presented by Fama.

2. US Equity Market, January 1927–April 2016

Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. US Equity Market is the Fama/French US Total Market Index. Data provided by Fama/French.

But, because stock returns have been noisy, these differences in average returns have not been reliably different from zero. In other words, at a glance there does not seem to be an economically meaningful difference in average equity returns based on the volatility of the prior month.

Exhibit 2 demonstrates that average stock market returns appear similar across various levels of market volatility. Is the equity premium (the return over US Treasury bills, or “T-bills”) also similar across different levels of volatility?

Exhibit 3 shows the average monthly returns for the US equity market and T-bills from January 1927 through April 2016. The full sample is further broken out into average returns for months following a “high volatility” month (75th percentile or above) and the remaining months.

3. Average Monthly Returns, January 1927–April 2016

Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. US Equity Market is the Fama/French US Total Market Index. Data provided by Fama/French. US Treasury Bills data provided by Morningstar.

We see that the average monthly equity premium has been higher after high volatility months. Nevertheless, the difference with all other months is not reliably different from zero—meaning we cannot reliably say that the premium is higher or lower after months with high volatility.2 These results suggest it is unlikely we can learn anything about this month’s equity premium based on last month’s volatility.

What if we had a trading strategy that attempted to avoid investing in equities when volatility was high? How would such a strategy perform relative to the market? Exhibit 4 shows returns and standard deviations for the US equity market,
T-bills, and a hypothetical trading strategy that bails out of equities and invests in T-bills when the previous month’s volatility was high—a strategy that “flies to safety.” If the previous month’s volatility was high (75th percentile or above), the strategy invests in T-bills. If the previous month’s volatility was not high, the strategy invests in US equities.

Over the period from January 1927 through April 2016, the volatility of the “fly to safety” strategy, as measured by its standard deviation, was lower than the volatility of the US equity market (12.21% vs. 18.66% annualized). This makes sense because the fly to safety strategy is invested in
T-bills one quarter of the time, so we would expect it to have a lower volatility. However, this lower volatility came with lower returns, as the fly to safety strategy had an annualized return of 8.22%, compared to 9.75% for US equities. A strategy investing 75% in the market and 25% in T-bills would have performed similarly to the fly to safety strategy, as illustrated in the last column of Exhibit 4.

4. Performance, January 1927–April 2016

The Hypothetical “Fly to Safety” Strategy invests in T-bills if the previous month’s volatility was high (75th percentile or above). If the previous month’s volatility was not high, the strategy invests in US equities. Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. US Equity Market is the Fama/French US Total Market Index. Data provided by Fama/French. US Treasury Bills data provided by Morningstar.

2. The t-statistic for the difference in equity premium between months after high volatility and non-high volatility is 0.70. Normally, a t-statistic of at least 2 is necessary to reliably say that the result is different from zero.

Consistent with the analysis presented thus far, Exhibit 5 shows the randomness of the relation between recent volatility and future returns. The relation between them looks “flat.” That is, recent volatility does not indicate if future returns will be “high” and does not indicate if future returns will be “low.” This is confirmed through regression analysis, which further indicates there has been no reliable relation between recent volatility and future returns.

What can we take away from this analysis? Put simply, we can expect volatility when investing in stocks. There is considerable academic evidence that an investment strategy attempting to forecast short-term price movements is unlikely to be successful. Forecasting short-term stock market performance based on current volatility is no different. We believe that developing an asset allocation to match up with your desired risk tolerance and investment objectives, and staying disciplined and rebalancing in all market environments, remains an effective way to pursue your long-term investment goals.

5. US Equity Market Volatility This Month vs. Return Next Month

US Equity Market is the Fama/French US Total Market Index. Data provided by Fama/French.

Index Definitions

All expressions of opinion are subject to change. This article is distributed for informational purposes, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, products, or services.Past performance is no guarantee of future results. There is no guarantee an investing strategy will be successful.

Fama/French US Total Market Index: Value-weight return of all CRSP firms incorporated in the US and listed on the NYSE, AMEX, or NASDAQ that have a CRSP share code of 10 or 11 at the beginning of month t, good shares and price data at the beginning of t, and good return data for t.

Brexit impact on US Investors

Brexit: What It Means for You

Brexit impact on US InvestorsLast Thursday, June 23, British voters voted in favor of “Brexit” — British exit from the European Union. I would like to share with you Union Financial Partner’s perspective on this decision.

In the short term U.S. markets have joined the global reaction to the surprise British outcome. Stocks have declined sharply and bond prices are higher, reducing interest rates. But the U.K. vote makes little difference for many U.S. companies and investors– so don’t overreact. Vanguard founder, Jack Bogle says “I think whatever your view of the world is, you have to invest,” says Bogle. “The alternative is – I mean, the only way to guarantee you will have nothing at retirement is to invest nothing along the way.”

While it’s natural to be concerned when stocks drop, sticking to the plan is the key in moments like these. Staying invested in a diversified-long-term portfolio will help you achieve your long term financial goals, despite these short-term changes. World stock market statistics have proven resiliency over and over again to provide capital for businesses and returns for investors regardless of shifting political and social alliances. Trying to forecast economic events, and then moving in and out of markets based on those forecasts, has proven to be a fool’s game. The only thing more foolish would be to sell after markets tank, which is an all too human response.

Leading up to and since the vote, Dimensional Fund Advisors (DFA) has worked with their counter-parties, including custodians, brokers, and dealers, to assure operational integrity throughout any disruptions resulting from the UK’s leaving the EU. We urge caution in allowing market movements to impact long-term asset allocation. Long-term investors recognize that risks and uncertainty are ever present in markets.

While I am unconcerned about the economic and market implications of the Brexit vote, I am disturbed by reports of racism following the vote and the cultural protectionism that seems to underlie the movement. Money is only a part of the foundation of our current and future well-being and we need to work for the peaceful cultural integration of people, families and communities so that we can enjoy our financial prosperity.

Union Financial Partners has 30 years of experience managing portfolios, including during periods of uncertainty and heightened volatility. We monitor market events—including their impact on trading and trade settlement—very closely and consider the implications of new information as it comes to light. We are paying close attention to market mechanisms and they appear to be functioning well. Our investment philosophy and process have withstood many trying times and we remain committed.

If you have specific concerns about your portfolio, please call me (415.563.3000) or email me aterranova@uf.flywheelsites.com to discuss.

Ann Terranova Financial Advisor

The U. S. Government Bailout – A Retrospective

By: Ann Terranova, CFP®

Now that the bailout seems to be relegated to a place in history and the world faces a host of new challenges, I thought it would be good to look back and remember what happened and the work that still needs to be done. In this sense, I mean on a Legislative basis but also what we need to do personally to ‘keep our own solvency when all the world is losing theirs.’

The Government Bailout of 2008-2009, specifically the Troubled Asset Relief Program (TARP), officially ended December 2014 when the Treasury sold its last remaining stake in Ally Financial (formerly GMAC). According to the Propublica.org Bailout Tracker (https://projects.propublica.org/bailout/) a total of $618.1b was expended through the various Bailout programs and $643.4 b was returned, for a profit of $65.3b. Of the money received, $390b was a return of principal and $293.4b was earnings (dividends, interest and profit) on the funds loaned or invested.

During the crash I did in-depth research on the bailout on behalf of my clients, wrote extensively and spoke publicly. I listened repeatedly to my clients’ concern that the government is handing out money. I set out to find it. I scoured GAO Reports, Treasury Reports, Financial Stability Board Reports, Stress Tests, Basel III, and any and all documents I could get my hands on. In every case I found money loaned and money invested, always with interest, with dividends, with equity. It is difficult for me to listen to public debate where the Government is chastised both for losing money and for making money on the bailout. Public debate about the debt ceiling and budget deficits often lacks an understanding of the bailout and subsequent stimulus programs. The bailout itself did not increase the U. S. debt picture. Subsequent stimulus programs aimed at getting the economy out of recession did have a large impact on the public debt. Should the Government take action to revive the economy when faced with a recession or depression?

Investing money has to be seen in a different light from spending money. Bailout transactions were carried on the U. S. Government Balance Sheet both at a liability (decrease in cash funded by issuing Treasury Securities – loan payable) and a corresponding asset (an investment or loan receivable). What we see below is the TARP money on the U. S. Balance Sheet as an Asset.

  • In 2009 TARP assets are 239.7 and 23.5.
  • In 2010 TARP assets are 144.7 and 20.8.
  • In 2011 you can see 80.1 and 10.9.

The money to fund the TARP Program is part of the increase in Federal Debt Securities as a Liability, but only a small part. Federal Debt Securities increased from 5,836.2 in 2008 to 10,174.1 in 2011. Here is where you can see the U.S. Government ‘printing money’ to fund programs.

A summary of the Assets and Liabilities of the U. S. Government Balance Sheet from 2008 – 2014 shows that both assets and liabilities have increased over the years.

The bailout program itself was generally matched between assets and liabilities on the U. S. Government Balance Sheet. The Government’s economic stimulus program involved injection of cash into the economy by way of issuance of Federal Treasury Securities. CNN Money charts the entire bailout and economic stimulus program at $3trillion as of November 19, 2009. The stimulus programs generally involved the expenditure of cash without exchange of corresponding assets. The U. S. Federal Reserve, in addition, was purchasing Treasury Securities from banks as part of the Quantitative Easing Program, indirectly increasing the overall level of outstanding Treasury Securities.

Government programs, including those for stimulating the economy have cost the Government money, financed by debt. This is supposed to come back when the economy recovers and revenues increase, allowing the Government to reduce debt levels. How this is going to happen of course remains a mystery and the subject of much public debate.

The failure of the Government, in my opinion, was not in carrying out the bailout program. It was and still is the failure of Congress to enact laws effectively regulating the newly combined Banking and Brokerage industry.

  • The passage of the Gramm-Leach-Bliley Act, so called ‘The Financial Privacy Modernization Act,’ in 1999 (Bush Administration) ended the separation of banking and brokerage industries that had been established in 1933 by Glass-Steagall.
  • The Commodity Futures Modernization Act introduced by Phil Gramm and passed in 2000 (Clinton Administration) entirely deregulated the financial derivatives market and allowed unprecedented leverage against assets of dubious value ultimately backed by our bank deposits.
  • Since the Crash and Great Recession of 2008 – 2009 Congress has been ineffective in reinstating any significant regulations that would provide economic safety for the economy and for the public.

What can people do to keep our solvency when all the world is losing theirs? As I have been saying since 2008, if we are disgusted by ‘Too Big to Fail’ banks and the inability of Congress to regulate them, we have to vote with our feet and move our money into banks that are really just banks. If these institutions are too big to fail, it is partly because we all have given them our money and put it on deposit for them to use despite our glaring knowledge that they are not serving us. We have to stop. There are many local, regional banks that can serve our needs. Use them. Our vote as consumers will have a greater impact than our ability to effect regulatory legislation.

What do I do as a professional in the finance industry to maintain solvency?

  • I look for personal financial strategies that support the decentralization of the financial system.
  • I support local or regional banking relationships.
  • I am monitoring the development of blockchain technology that has the potential to transform our financial system and provide a system of accounting with so much transparency and integrity that third party institutions are no longer necessary for settling all personal and business transactions.
  • I look for investments that are direct, eliminating as many layers of institutions as possible between you and your money.
  • I look for investment strategies that are broadly representative of the whole economy, not just the biggest multinational companies.

We have to maintain our own healthy balance sheets and spending habits. Having a solid financial foundation with reasonable amounts of leverage (home mortgage for example) is what allows us to weather the financial storms that can erupt around us. We have to make sure to diversify our investments with appropriate levels of risk. We need cash in the bank for emergencies, we need bonds and we need equities for long-term growth.

We need to have a plan. The financial plan gives us guidance about our present and our future. We use investment, tax, asset location, business and cost-saving strategies to improve the future purchasing power of our hard-earned money and our valuable savings. The plan gives us a perspective to stay on track when dramatic events are unfolding around us. From that solid foundation of strength, let’s participate more fully and take control over the creation of our own financial futures.

New York Times

One Market Prediction Is Sure: Wall Street Will Be Wrong

This wonderful article from the New York Times explains the futility of short-term predictions about the stock market. Union Financial Partners investment philosophy is based on useful academic analysis of risk factors: market cap, book-to-market, EBIDTA/book. It is about managing risk factors while diversifying across asset classes. Portfolio construction is informed by your specific financial goals, not short-term market movements.

Ready the New York Times Article