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December 2014 VOLUME 5 ISSUE 9
Financial focus
A Look Back and a Glimpse Ahead At Timothy Herbert Financial Group, we want to continue to provide all of
our clients with superior service and a top-notch experience. As part of that commitment to you, we are pleased to provide you with our 9th
semi-annual newsletter, filled with personal notes from the staff, educational articles, great photos from past events and much more. On
behalf of the entire team, we wish each of you a wonderful and financially fulfilling read!
INSIDE THIS ISSUE
Use Your Brain
Get Up! Stand Up!
Credit & Payment Security: Good News and Bad News
Going Green for the Holidays
Inheritance Choices: What Will You Leave Behind?
Tighter Monetary Policy Ahead
News & Events
Scarcity & Opportunity
Contact Our Team Members
Happy Holidays!
Use Your Brain
If you’ve been “feeling your age” lately, you may want to pick up a copy of molecular biologist John Medina’s newly updated and expanded book Brain Rules (or download it onto your mobile device). In the book, he marvels at the wonder that is the human brain:
“Easily the most sophisticated information-transfer system on Earth, your brain is fully capable of taking the little black squiggles in this book and deriving meaning from them. To accomplish this miracle, your brain sends jolts of electricity crackling through hundreds of miles of wires composed of brain cells so small that thousands of them could fit into the period at the end of this sentence… What’s really incredible, given our intimate association with it, is this: Most of us have no idea how our brain works.”
Rules To Think By The rules mentioned in the title of the book introduce readers to things scientists know about the brain – things that can help us work, learn,
and play better.
The rules are supported by scientific research and accompanied by interesting stories. The book also offers ideas about how the rules may apply to daily life. For instance, in highly abbreviated form, here are two of the rules Medina offers: Rule #2: Exercise boosts brainpower Anthropologists estimate our ancestors walked or ran 10 to 12 kilometers (about 6 to 8 miles) every day. The implication is our brains developed while we were moving and contending with a variety of threats: animals, fires, floods, and the like. As it turns out, people who exercise consistently show better cognitive performance than those who don’t. Medina’s suggestion: At work, hold meetings during walks.
TOP 10
HOLIDAY SONGS OF ALL
TIME 10. Jose Feliciano – Feliz
Navidad
9. Bobby Helms – Jingle Bell
Rock
8. Burl Ives – Holly Jolly
Christmas
7. Vaughn Monroe – Let It
Snow
6. Gene Autry – Here Comes
Santa Claus
5. Bing Crosby – White
Christmas
4. Gene Autry – Frosty the
Snowman
3. Elvis Presley – Blue
Christmas
2. Gene Autry – Rudolph the
Red-nosed Reindeer
1. Jingle Bells
The above material was prepared
by Peak Advisor Alliance.
Rule #8: Vision trumps all other senses When USA Today was first published, the idea of less text and more words was widely ridiculed. Within four years, the paper had the second largest readership in the country. We pay a lot of attention to what we see – color, orientation, size, and motion. We had to, just to survive. A take away from the vision rule is this: If you want to communicate an idea effectively, use visuals and motion. If you find the human brain fascinating and want to learn more about it or you want to gather as much information about how to maximize performance at work, learning in school, and downtime at home, then you should find time to read Brain Rules.
1. Which team won the first Super Bowl? a. Buffalo Bills b. Chicago Bears c. Green Bay Packers d. Kansas City Chiefs
2. What city did the Cardinals play in before they went to Arizona?
a. Los Angeles b. St. Louis c. Orlando d. San Jose
3. The New England Patriots won back-to-back Super Bowl titles in 2004 and 2005. Which team was the last to win back-to-back titles before the Pats?
e. Dallas Cowboys f. Denver Broncos g. Pittsburgh Steelers h. Washington Redskins
4. How many NFL teams are named after cats? a. Three b. Four c. Five d. Six
What Do You Know AboutFootball?
Sitting is bad for your health. Whether you’re sitting at a desk doing work, in a classroom listening to a lecture, or on a ship sailing the ocean, research suggests extended periods of sedentary behavior may increase the likelihood of high blood pressure, heart disease, diabetes, kidney disease, and cancer, as well as poor mental health. No one is sure why sitting is such a problem, but it is. According to The New York Times researchers have found: “…After an hour or more of sitting, the production of enzymes that burn fat in the body declines by as much as 90 percent. Extended sitting, they add, slows the body’s metabolism of glucose and lowers the levels of good (HDL) cholesterol in the blood. Those are risk factors toward developing heart disease and Type 2 diabetes.” Adding insult to injury is the fact risk levels don’t change even if you hit the gym for a tough workout after sitting all day.[1] An Australian study published in JAMA Internal Medicine found people who sit for more than 11 hours a day have a much higher risk of dying within three years than more active people. The odds were better for people who exercised five or more hours a week, but exercise didn’t entirely offset the negative effects of sitting.
You like to move it, move it… According to The Economist, “A typical car-driving, television-watching cubicle slave would have to walk an extra 19 km (about 12 miles) a day to match the physical-activity levels of the few remaining people who still live as hunter-gatherers.”
Fortunately, research hasn’t indicated a hunter-gatherer level of activity is required to improve health outcomes. You don’t even have to join a gym, according to the experts. Just engage in moderate activity throughout the day. Here are some suggestions for becoming more active: Stand up. Standing requires muscle activity and supports processes related to the breakdown of fats and sugars within the body. In other words, it has a far different effect on the body than sitting. Standing desks are widely available as are options to convert a regular desk into a standing desk. Break it up. Walk for two minutes every 20 minutes or so. Do a lap around your building or walk to a colleague’s office for a chat instead of sending an email. Engage in desk-ercise. Look into exercise equipment for your desk. Depending on your preferences, you may opt for elliptical paddles, cycle pedals, or a skateboard platform. If you have more disposable income, you may want to invest in a treadmill desk. No matter how you do it – making trips to the grocery store on foot, gardening in the cool evening hours, walking with colleagues instead of sitting at a conference table, or being active in other ways – building leisurely activity into your day has the potential to greatly improve your health.
HOLIDAY
SNACKING
Ingredients
Candy Canes
Marshmallows
Hot Chocolate
Directions
Roll marshmallows
in crushed candy
canes and float
them in your
next cup of hot
chocolate!
Recipe from
foodnetwork.com
Get Up! Stand Up!
The above material was prepared by Peak Advisor Alliance
The above material was prepared by Peak Advisor
Alliance
Let’s Celebrate POMEGRANATES
Did you know that pomegranates have antioxidant, antibacterial and antimicrobial properties? In alternative medicine, it has been used to treat heart disease, cancer and diabetes. Extracts of this fruit has also been shown to fight against
staph, salmonella and some kinds of strep bacteria.
Here a few quick and easy ways to pack pomegranates into your diet!
1. Add pomegranates to your favorite cereal or oatmeal 2. Add them into your favorite baked goods 3. Sprinkle some pomegranates on top of your favorite salad 4. Mix pomegranates into your favorite yogurt 5. Make a delicious pomegranate smoothie 6. Freeze them in ice cubes and add them to your glass of water
Minty Marshmallows
Credit & Payment Security:
A Cycle of Good News and Bad News
The gang members were charged with stealing and selling more than 160 million credit card numbers from JCPenney, 7-Eleven, JetBlue, Heartland Payment Systems, Carrefour (in France), and one of the world’s largest credit and debit processing companies. The thefts could be tracked back to 2005, according to The New York Times, and had resulted in hundreds of millions of dollars in losses. Unfortunately, the indictments were not effective and the same group is suspected of participating in the security breaches of Target, Michaels, and Neiman Marcus companies just a few months later. Adopting the Europay, MasterCard, and Visa Standard The continued and very public success of hackers and the ever-increasing cost of fraud losses, fraud management, and fraud-related expenses spurred the United States credit payment industry to change the way it does business. After decades of resisting the Europay, MasterCard, and Visa (EMV™) standard for credit payments, which is generally believed to be more secure than our current payment system, the industry is adopting it. It’s an action many believe is long overdue. According to a BusinessWire.com article in August 2013, it stated The Nilson Report, a leading payment industry newsletter, provided an overview of card fraud around the world: “The U.S. accounted for 47.3% of global card fraud losses but generated only 23.5% of total volume… The absence of EMV cards and terminals in the U.S. also contributes to fraud losses. The U.S. is the only region where counterfeit fraud continues to grow consistently… EMV adoption would not only help U.S. issuers but also issuers in other parts of the world that must continue to put mag-stripes on their cards to accommodate point-of-sale terminals in the U.S…” The good news is change in finally on its way. The bad news is it may take longer than expected. Some estimates project the majority of U.S. merchants will be EMV compliant by 2016, but many analysts believe that goal will be reached closer to 2018. What is EMV? EMV was developed in the 1990s after a study commissioned by the European Council for Payment Systems, and conducted by Europay International, determined the most effective way to reduce credit card fraud was to eliminate magnetic stripes (mag-stripes) and embed chips in credit and debit cards. In a Capgemini document, published early 2014, it stated: “…Magnetic stripe cards, which store sensitive customer data unencrypted on the rear magnetic stripe, have been found to be vulnerable to various frauds such as skimming and counterfeiting. Chip-based EMV cards store customer data on a chip in encrypted format and are less vulnerable to fraud. This led to increased EMV adoption in several regions across the world.” In the United Kingdom, the introduction of EMV cards is credited with helping reduce fraud significantly. Counterfeit card fraud fell by 75 percent after peaking in 2008, and fraud losses have fallen by 75 percent since 2004.
Eighty countries around the world already have implemented or currently are implementing EMV technology. For instance, about 95 percent of card readers in Europe; 79 percent in Canada, Latin America, and the Caribbean; 77 percent in Africa and the Middle East; and 51 percent in the Asia Pacific region are EMV compliant. In fact, if you’ve traveled overseas recently, you may have encountered the EMV standard. It’s a source of frustration for American travelers who find their mag-stripe credit cards won’t work in train station kiosks and are not accepted by some retailers. Ironically, even criminals prefer the EMV standard. The going rate on the black market for an American credit card number is $10. A European card number, on the other hand, will fetch about $50. According to The Washington Post, there are two reasons for this. First, American card numbers are easier to get. Second, when used in the United States, European cards are no more secure than mag-stripe cards because American retailers do not adhere to the EMV standard. Couple this with the fact European banks are slow to process transactions on weekends and criminals can enjoy a spending spree.
An Evolving Industry The good news is EMV should make card payments in the United States more secure. The bad news is payment systems are not static. As the popularity of mobile devices has grown so has the popularity of mobile banking and commerce. Some consumers already have embraced mobile applications that allow them to use smart phones or tablets to pay for goods and services. The growth of mobile payments is expected to accelerate and change the way business is done around the world. Gartner, the world's leading information technology research and advisory company, estimates global mobile transaction volume will grow by 35 percent on average from 2012 to 2017. The company’s forecast suggests the mobile payments market will comprise 450 million users and will be worth more than $720 billion – a number that was reduced during 2013 because of lower-than-expected growth in North America and Africa – before the end of the decade.
Protect Yourself Against Fraud Of course, a new payment system means new hardware and security solutions. Mobile payment security will depend on application configurations as well as security measures taken by smart phone and tablet users. If you use or plan to use your mobile device for banking or commerce, make sure you take basic safety precautions:
Protect your mobile devices using complex passwords
Download an app for finding a lost device and/or disabling it
Only download apps from trustworthy sources
Check app reviews and ratings before downloading them
Only bank or shop over secure Internet connections (not public Internet connections)
Make sure the web address begins with https (indicating you
have a secure connection) before sending data The good news is American consumers will have lots of choices when they want to make purchases. The bad news is it can be challenging to stay abreast of new technology and the security measures it requires.
It was good news. In July 2013, federal prosecutors in the United States brought indictments against members of a sophisticated Russian syndicate.
The above material was prepared by Peak Advisor Alliance
PERSONAL NOTES
Have you checked out our new website? It is complete with a fresh look and
user-friendly navigation! Plus, we have a brand new "Knowledge Center" filled with an array of timely financial information!
Click below to visit our new site - we would love to know what you think!
www.timothyherbert.com
Special Announcement:
We Have a Brand New Website!
Timothy Herbert. Tim’s oldest daughter Kara is in her senior year at Michigan State University’s Eli Broad School of Business. She is very excited because she landed a job at Plante Moran in Chicago! Maddie, Tim’s youngest daughter, is recovering well, she tore her ACL in a soccer game a few months ago and had to have surgery to repair it. Maddie is in her senior year at Clarkston High School and has been visiting various colleges as graduation nears. The entire Herbert Family is looking forward to spending some time in Florida during the cold Michigan winter.
Scott Torosian. Scott’s family has blossomed into one he could have only imagined. 5-year old Noah and 4-year old Luke are in school together at Our Lady of the Lakes. Grace, their youngest, has completed the Torosian household and they can always count on her for a smile and hug. Scott and his wife Christine will be celebrating 9 years of marriage in 2015! Scott is looking forward to the winter months so he can head Up North for some hunting with his Dad and brothers!
1. Donate Toys to a Charity. This is a great opportunity to teach your kids and grandchildren about donating toys to local charities. Most kids outgrow their toys from past years so this is a great opportunity to recycle those toys while simultaneously teaching your kids a great lesson. The Salvation Army, Goodwill and many hospitals and daycares accept gently used toys.
2. Make Your Own Ornaments. You can gather pinecones from outside and coat them with glitter to make sparkling ornaments for your tree or table decorations. Leaves from outside also make great stencils for do-it-yourself ornaments!
3. Used Recycled Materials. You can cut up last year’s holiday cards to make tags for this year’s gifts. You can also use recycled paper for wrapping. You can also hide an unwrapped gift somewhere in your home and give at treasure map to the recipient to find it! 4. Opt for E-Cards. Save paper by creating and designing your own holiday cards using drawing applications on your favorite tablet. You can use these programs to create holiday cards with your kids and then email them to your friends and family. Sketchbook Express is a great program to check out! 5. Opt for a Live Tree. You can even choose a tree that you can plant in your backyard once the holidays are over! GO GREEN WITH YOUR FINANCES! The time has come to go green with your financial statements! Instead of having them mailed to your home, why not have them electronically delivered to your email and reduce paper waste? Follow these quick tips to finally feel financially green! 1. Go to your fund company’s website and on the homepage there should be an area that says “Go Green” or “Go Paperless.” Click that area and follow the directions from there! 2. If you are unable to locate the paperless statement option from the fund company’s website, go to Google Search and type in the fund company’s name and the word “paperless.” For example you could search “Jackson National Paperless” and the link should come up taking you directly to the page.
Brainteasers: Test Your Mental Sharpness
Exercise 1: A clerk at a butcher shop stands five feet ten inches tall and wears size 13
sneakers. What does he weigh?
Exercise 2: Billie was born on December 28th, yet her birthday always falls in the
summer. How is this possible?
Exercise 3: If you were running a race and you passed the person in 2nd place, what
place would you be in now?
Exercise 3: A farmer has five haystacks in one field and four haystacks in another.
How many haystacks would he have if he combined them all in one field?
How many did you get right? Both physical and mental exercise can improve cognitive function and
positively affect memory and coordination. Mental exercise is not hard to find. Just surf the Web to find
brain fitness challenges.
Tips to Go Green this Holiday Season
Inheritance Choices: What Will You Leave Behind?
History is full with examples of parents taking actions they believe will improve the lives of future generations. In 1780, then President of the United States John Adams wrote to his wife: “I must study Politicks and War that my sons may have liberty to
study Mathematicks and Philosophy. My sons ought to study Mathematicks and Philosophy, Geography, natural History, Naval Architecture, navigation, Commerce, and Agriculture, in order to give their Children a right to study Painting, Poetry, Musick, Architecture, Statuary, Tapestry, and Porcelaine.” The underpinning for an improved future may be found in the bedrock of an enduring political system, a free country, a strong work ethic, a superb education, or elsewhere. The 2014 U.S. Trust Insights on Wealth and Worth report found six in 10 wealthy Americans believe it is important to leave a financial legacy for the next generation. If you intend to provide heirs with financial bequests – and you want to preserve family harmony – it’s important to clearly understand the story your inheritance choices will tell your heirs.
What is equal in the context of family? One of the most challenging aspects of planning an inheritance is families are complicated. American families are varied throughout the country but their members tend to fall into one or more of a few broad categories. According to the Key Findings Report in the 2014 U.S. Trust Insights on Wealth and Worth: Single person: About one-fifth of wealthy participants, in a recent survey, had never married or had not remarried after being divorced, separated, or widowed (a small percentage are cohabitating).
Traditional marriage: About three-fourths of affluent Americans are in their first marriage and two-thirds have children.
Blended marriage: The Silent Generation (24 percent) and Baby Boomers (17 percent) are more likely than younger generations to have blended families, meaning they have remarried after being widowed or divorced and may have step-children. Multi-generational household: Generation X (11 percent) and Millennials (32 percent) are more likely to live in multi-generational households, meaning they have either live with siblings, parents, or grandparents, or have adult children, parents, or grandparents living with them.
In the context of family, what seems like the simplest choice – dividing assets equally among all of heirs – becomes quite tricky because equality is in the eye of the beholder. A grown son may believe he deserves a bigger slice of financial pie because his family has the most children. A daughter may believe she deserves more because she was the primary caregiver when you were ill. Mix subjective judgments about fairness with the complexities of modern American family structure and inheritance issues can become quite touchy. Minimizing inheritance disputes Determining an equitable division of assets is never easy, not even for single parents or couples in traditional families. One child may suffer a disability, have an addiction problem, run the family business, be less successful than siblings, or have made life decisions parents are uncomfortable supporting. If your family circumstances necessitate an uneven distribution of assets, there are a myriad of ways to try and minimize the conflicts that may accompany the decision. These include: Acting discretely. If you’ve decided an unequal division of assets is necessary and know your children will not be happy with your decision, consider establishing a discreet trust for each child. The advantages of discreet trusts are they can be funded unequally and each one can have completely different distribution triggers and incentives. In addition, each child will only be apprised of the provisions of his or her trust unless the information is shared. Make sure the assets that will fund each trust are properly titled.
Establishing a shared trust. If you distribute the majority, but not all, of your estate equally among heirs, the remainder (perhaps one-fifth or one-quarter of the assets) can fund a shared trust to be used when an heir has an emergency need. The trust should have an objective third-party trustee who will be responsible for distributing funds fairly.
Choosing your executor carefully. Some say it’s best to follow family hierarchy and make your oldest child executor. Others say it’s best to choose a family member who is organized, hardworking, honest, and a good communicator. Still others will suggest you appoint a committee of executors because of the checks and balances a group provides. No matter what you decide, make sure everyone understands your choice.
Explaining your thinking. The difference between family harmony and an ongoing feud may be determined by how clearly you communicate with your family. The Wall Street Journal suggests, “Whenever possible, try to be open about your inheritance plan while you are still alive, so every family member truly understands it, minimizing the chances for suspicions to arise later. If you don't want to have this difficult conversation while you are alive, you can write a letter or make a video elaborating on the reasons and thought process behind your plan and making it clear that these decisions are yours alone.”
Congratulations TIMOTHY HERBERT FINANCIAL GROUP – AGAIN!
For the 6th year in a row, Timothy Herbert Financial Group was named
as a FIVE STAR Wealth Manager by Hour Detroit Magazine!
The above material was prepared by Peak Advisor Alliance
TIMOTHY HERBERT
LIZ KAADOU
PERSONAL NOTES Danielle Boyer is our Director of Operations. She has been with Timothy Herbert Financial Group since 2007. Danielle recently went on a great getaway to Cancun with her family where she and her boyfriend Kevin went on an excursion to the Mayan Ruins. Danielle is looking forward to the winter months so she can travel up north to Boyne City. She is also in the process of planning a trip to Japan next year! Danielle is a proud graduate of Oakland University with a degree in Finance and a minor in Communications. In her spare time, she enjoys traveling, shopping and spending time with her family.
Liz Kaadou is our Director of Marketing. She has been with Timothy Herbert Financial Group since 2012. Liz is always excited for the fall and winter because that means football season is here and she can cheer on her Wolverines! She also has a few trips up to Traverse City and Gaylord planned for the winter. In her spare time, Liz enjoys traveling, salsa dancing and reading just about every Nicholas Sparks novel she can get her hands on. Liz is also a huge fan of the Hunger Games franchise and can’t wait for the last two movies to come out (she’s already read all the books though!) She is a proud graduate of the University of Michigan with a degree in Journalism and Public Relations.
Brian Herbert is our Marketing Associate. He has been with Timothy Herbert Financial Group since 2007. Brian has had an exciting year so far! He traveled to Las Vegas this summer for his daughter Meredith’s wedding. While there he had some fun zip lining and also tried 17 cokes from different countries. His other daughter Mallory is getting married next July. His son Austin is in his second year of college and his younger son Wade is a junior at Royal Oak High School where he plays Hockey and Lacrosse. Brian enjoys running and this year ran in the Moustache Dash 5k where he ranked in the top 14 for his age bracket. He is looking forward to the holiday season so he can spend time with his family and friends!
Grant Pollack is our Operations Associate and Wealth Investment Analyst. He has been with Timothy Herbert Financial Group since September 2013. Grant and his wife Ashely had an exciting year because they bought their first house in Waterford and have spent the past few months painting and renovating it together. Grant is excited for the upcoming holidays to spend time with his family. He is also looking forward to some snow this winter because he is planning his first ski trip ever! Grant is a graduate of Oakland University with a degree in Finance.
CAROLINE CHETOSKY joined Timothy Herbert Financial Group in July 2014 as an Operations Associate. She comes to the firm with over 12 years of banking and customer service experience. She has two children, her son Justin is 22 and her daughter Kimberly is 10. Caroline currently lives in Shelby Township and enjoys spending time with her friends and family as well as attending various charity events and volunteering at her church.
NEW FACES
DEANNA MCHUGH joined Timothy Herbert Financial Group in October 2014 as an Operations Associate. She comes to the firm with over 12 years of financial services experience. Deanna and her family recently moved back to Michigan from Australia where they lived for 13 years. She currently lives in Sterling Heights with her husband Tony and their two sons Liam and Oliver.
STEPHEN MARTINOVICH joined Timothy Herbert Financial Group in June 2014 as an Operations Intern. Stephen currently attends Oakland University where he is finishing up his senior year. He will graduate with his Bachelor’s Degree in Finance next spring. Stephen is looking forward to winter so he can play hockey and go snowboarding. His father is a Delta Pilot so in his spare time Stephen travels to visit him in various cities. In his spare time he enjoys going to concerts, and eating at Chipotle (it really is his favorite restaurant!) Stephen will be assisting with client preparation and additional projects around the office.
DARIUSZ NOWAK joined Timothy Herbert Financial Group in June 2014 as an Operations Intern. Dariusz is currently in his senior year at Oakland University where he is double majoring in Finance and Business Economics. He is also a member of the men’s soccer team at Oakland University. Dariusz currently resides in Sterling Heights and in his spare time he enjoys spending time with his family and girlfriend as well as watching and attending various sporting events.
WE HAVE EXPANDED!
We are extremely excited to announce that in order to ensure we continue to provide the highest level of service to our clients; we have expanded our office! We recently completed a renovation
of our office space and added new offices and desk areas to accommodate our growing team! Thanks to all of our wonderful clients and the great referrals you provide, the office has grown exponentially and we have added on additional support staff to make certain you receive the utmost in service from our team! With our expanded space and staff, we are fully prepared to continue to take on new clients and provide the same help and service to any of your co-workers, friends
and family!
WHAT’S NEW at the OFFICE?
BEFORE AFTER
Tighter Monetary Policy Ahead
If the mismatch between economic news and market performance felt familiar this Fall, it’s probably because we experienced almost the same thing during 2013 as pundits and analysts tried to discern when the Federal Reserve would begin to end quantitative easing.
For months, bad economic news proved to be good news for stock markets. This year, investors are seeking signs that might give some insight about when the Fed will begin to raise rates. Once again, bad news has become good news. Since market volatility may continue for some time, it’s worth reviewing Fed policies since the financial crisis began and examining what may happen when the Fed begins to move the federal funds rate – the rate at which banks lend money to one another – higher. Easy monetary policy: Wind in the sails of a halted economy One of the primary responsibilities of central banks is to manage economic growth through monetary policy. In broad terms, monetary policy is controlling a country’s money supply. For example, when businesses become nervous about the future and we see a decline in spending and investing, a central bank may encourage borrowing and spending by lowering rates, changing reserve requirements, or employing other tools. This is called monetary easing. A central bank can also tighten monetary policy when the economy begins to grow too fast or inflation rises too high. Tightening monetary policy often entails raising rates and raising reserve requirements to discourage borrowing and spending. [1] Since late 2007, the Fed has pursued an easy money policy. Early on, when a near-zero federal fund rates failed to encourage recovery, the Fed began to employ unconventional monetary tools – like quantitative easing (QE) – to pump liquidity into the economy. The Economist described QE like this: “To carry out QE central banks create money by buying securities, such as government bonds, from banks with electronic cash that did not exist before. The new money swells the size of bank reserves in the economy by the quantity of assets purchased – hence "quantitative" easing. Like lowering interest rates, QE is supposed to stimulate the economy by encouraging banks to make more loans. The idea is that banks take the new money and buy assets to replace the ones they have sold to the central bank. That raises stock prices and lowers interest rates which, in turn, boost investment.” The Federal Reserve engaged in three rounds of quantitative easing between 2008 and 2013 and began tapering its bond-buying program in January 2014. As the end of QE closed in, investors began to focus on what would come next – the Fed raising rates – and how it might affect markets and economic growth.
Tighter monetary policy: Trimming the sails in choppy waters Between now and 2017, the Fed is expected to begin tightening monetary policy by raising rates for the first time since the financial crisis began back in late 2007. However, the timing of the Fed’s actions remains uncertain. During September 2014, The Wall Street Journal pointed out the Fed is “navigating a confounding economic environment that could complicate the methodical plans Ms. Yellen has laid out for policy in the months ahead.” While the Fed wants to end its easy-money policies before higher inflation becomes an issue, they don’t want to strangle economic growth by tightening too soon. In a speech titled, Patience Is a Virtue When Normalizing Monetary Policy, President of the Chicago Fed, Charles Evans, indicated tightening should begin later rather than sooner:
“History has not looked kindly on attempts to prematurely remove monetary accommodations for economies that are in or near a liquidity trap. The U.S. experience during the Great Depression – in particular, in 1937 – is a classic example… In response to positive growth and reinflation that occurred after devaluation and suspension of gold convertibility, the Fed raised reserve requirements, the Treasury sterilized gold inflows, and there was a fiscal contraction. Subsequently, the economy dropped back into recession and deflation.” A liquidity trap is a situation in which loose monetary policy doesn’t increase interest rates or stimulate economic growth. For instance, today, interest rates are low and savings rates are high, but many income investors are not buying bonds because they fear rates will rise and their holdings will decline in value. In September 2014, The Economist warned the risk of tightening too quickly was greater than the risk of tightening too slowly. It pointed out that gains made by the U.S. economy could be affected by factors at home and overseas. The labor market remained relatively slack in the United States and abroad. There were signs of disinflation in Europe and emerging markets and geopolitical issues seemed to be multiplying daily. The fear is if the Fed raises rates too soon it could push the U.S. economy back into recession and that would not bode well for global recovery. Steady into headwinds The Fed has reassured uneasy investors by indicating rates will not rise for a ‘considerable time’ after QE ends, and Fed Chairwoman Janet Yellen has stressed the decision will not be calendar-based but data-based: "I want to emphasize that there is no mechanical interpretation of what the term 'considerable time' means… If the pace of progress in achieving our goals were to quicken, if it were to accelerate, it's likely that the Committee would begin raising its target for the federal funds rate sooner than is now anticipated and might raise – might then raise the federal funds rate at a faster pace. And, the opposite is also true if the projection were to change."
The above material was prepared by Peak Advisor Alliance
TIMOTHY HERBERT In The News
2014 Juvenile Diabetes Walk For the 3rd year in a row, Timothy Herbert Financial Group sponsored and participated in the 2014 Walk to Cure Diabetes. The event took place on
September 28th, 2014 at the GM Tech Center and our team was able to raise $5,430 for the foundation! This was the first year we have surpassed
our fundraising goal of $5.000! Thank you for all of your continued support and well wishes in our charitable endeavors. Tim joined the movement to
find a cure for this disease in support and honor of his younger brother who
suffers from Juvenile Diabetes. For more information about this foundation please visit the Timothy Herbert Gives Back page on our website.
The Timothy Herbert Scholarship Timothy Herbert Financial Group is proud to announce their partnership with Northern
Michigan University for the second annual Timothy Herbert Scholarship. This scholarship
awards $2500 to qualifying students enrolled in the College of Business at Northern Michigan University. Please join us in congratulating our 2014 scholarship winner, Alyssa
LaLonde. She is in her senior year, majoring in Finance and Risk Management. Apart from her schooling, Alyssa works at Limestone Federal Credit Union as a teller. She truly enjoys
helping members of the credit union and hopes to advance in the finance industry while
continuing to give back to the community. To learn more about this scholarship, please visit the Timothy Herbert Scholarship page on our website.
Timothy Herbert Financial Group has been highlighted in a number of media publications. Below are just a few of the wonderful publications we are honored to be featured in:
To browse through all of the feature news articles, please visit our Newsroom page on our website www.timothyherbert.com
NEWS & EVENTS
The Scott D. Torosian Scholarship Winner Announced
Timothy Herbert Financial Group is proud to announce the winner of the first ever Scott
D. Torosian Scholarship in partnership with Eastern Michigan University. Scott Torosian is our Associate Wealth Advisor and has been with the firm for over 8 years. The Scott D.
Torosian Scholarship awarded $4000 to qualifying students enrolled in the College of Business at Eastern Michigan University, Scott's alma mater. We are proud to announce
Njomza Hisa as the 2014 recipient. She is a transfer student from Vienna and is obtaining
her BBA in International Business with a concentration in Supply Chain Management. She is member of the International Business Association and is fluent in German, English and
Albanian. Congratulators Njomza! For more information about this scholarship, please visit the Scott Torosian Scholarship page on our website.
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Scarcity & Opportunity
If you play fantasy football, you probably understand the economic principle of scarcity. Generally, there are a limited number of draft picks participants can use to maximize the talent on their teams. So, it’s essential to know which positions and players offer the greatest value. If there are a lot of great quarterbacks and defenses available, then running backs, tight ends, or wide receivers may be the most valuable picks early in the draft.
If you get a top player in a position that has little depth – a scarce and sought-after resource – you have a valuable asset. Any time there is limited supply and high demand for a good or service, the principle of scarcity suggests the price will rise until it becomes too expensive to attract purchasers. Eventually, the price will settle when supply and demand reach equilibrium. An interesting example of scarcity in today’s market is water . The value of water and diamonds Hundreds of years ago, in The Wealth of Nations (published 1776), Adam Smith discussed the paradox of diamonds and water when he asked:
“What is it that determines the rate at which different products are exchanged? The word value has two meanings – one is value in use, the other is value in exchange. Water is extremely useful, but has almost no exchange value, while a diamond is largely useless but has enormous exchange value.”
The question was confounding back in the late 1700s and early 1800s. Today, economists explain the disparity with marginal utility theory: Diamonds are rare, so each one is a prize. Water is plentiful, so an extra cup has little value. Water is a scarce resource The water-diamond paradox is particularly interesting today because water is becoming scarce and diamonds, while still a potent symbol of love and status, aren’t nearly as rare as they may have been in the past. In fact, according to a variety of sources, gem companies aggressively control the supply of diamonds that come to market in order to maintain the perception of scarcity and keep prices higher than they might be otherwise. Water, on the other hand, is a finite resource that is in high demand. Most fresh water is used for agriculture and industry, including power production. About 8 percent goes to cities and homes for drinking, washing, and watering. It’s important to note that fresh water is not abundant. Of all the water on Earth, just 2.5 percent is fresh. Of that:
10 percent is in lakes or rivers
30 percent is groundwater, some of which is deep in the earth and out of our reach
60 percent is in glaciers and ice caps
As populations around the globe have grown larger, demand for water has expanded and water scarcity has become a pressing issue. In fact, water scarcity is expected to be one of the greatest challenges of the 21st century. According to ScienceDaily.com, water scarcity, “…Affects every continent and around 2.8 billion people around the world at least one month out of every year. “Last summer’s Amyotrophic Lateral Sclerosis (ALS) Ice Bucket Challenge focused some attention on water scarcity when it was replaced with a “Rice” Bucket Challenge in India, where many people suffer from a lack of sanitation and clean water. Overall, by 2030, demand for water is expected to exceed supply by 40 percent. Although water remains relatively inexpensive in many developed countries, it has become more expensive in recent years. According to Circle of Blue (an organization founded by journalists and scientists to provide actionable information about the world’s water issues), the average cost for a family of four using 100 gallons of water per person per day (medium usage) has increased by 33 percent since 2010. In 2014, the increase is 6.2 percent, which is the smallest year-to-year change in the five-year history of the survey. Scarcity may create investment opportunities While water scarcity is a cause for concern, it also creates opportunities for investment. In fact, during 2013, an expert cited by Barron’s said water is the oil of the 21st century. There are many ways for people to invest in the issue. There are companies that have the potential to benefit from water scarcity. There also are companies working on potential solutions to the problem. Investors could choose to purchase shares of infrastructure (pipes, pumps, and wastewater treatment), utilities (obtain, clean, and deliver water), or water technology companies (conservation, desalination, and other solutions). They also could diversify by investing in some combination of these companies. Water is just one example of a resource that is becoming scarce. Global population growth is taxing many types of natural resources and creating a variety of potential opportunities for investors including companies that focus on efficient use of resources, renewable energies, and agricultural technologies. As we look to the future, this issue will only rise in importance so it is crucial to have a bifocal perspective of what may impact your life now and in the near future.
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