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A rocky road in D.C.

The beginning of October typically brings us cooler weather, the changing of the leaves, and a football season that is in full swing. October 1 is also the start of the new fiscal year for the federal government. Currently, there is no budget in place. Without an authorization for new spending, non-essential services will come to a halt on Tuesday if Congress and the president cannot come to terms on what’s commonly called a ‘continuing resolution,’ or a bill that would fund government operations.


Weekly Return %

thru Sep 27, 2013

YTD Return %

thru 9.27.13




NASDAQ Composite2



S&P 500 Index3



Bond Yields

*Yield % a/o

Sep 27, 2013

Yield - % a/o

Dec 31, 2012

3-month T-bill

0.02         +0.01


2-year Treasury

0.34           Unch


10-year Treasury

2.64         -0.11


30-year Treasury

3.68         -0.09



Sep 27 Price   & Weekly Change

Year end 2012

Oil per barrel4

$102.81     -2.00


Gold per ounce5

$1,341.00 -8.25


The added uncertainty the government might shutdown for the first time since 1996 created modest headwinds for stocks last week, and that added uncertainty provided modest support for Treasury bonds.

The sticking point – House Republicans on early Sunday morning passed a continuing resolution to fund the government through Dec. 15, 2013, which included a one year delay in Obamacare (Wall Street Journal).

Even if the House bill somehow passed the Senate intact, the president has promised to veto it, putting us back to square one.

If there is a government shutdown, it’s important to point out that essential services will continue, such as Social Security and Medicare benefits.

But hundreds of thousands of government workers would be furloughed, and non-essential functions such as national parks would likely be closed.

Who might blink first? I’ll leave that to the political analysts. But this leads us to how markets have performed against the backdrop of past government shutdowns.

There have been 17 government shutdowns since 1976, ranging from 1 to 21 days (Washington Post, AP).

Though markets slipped, the selloff wasn’t anything that might be considered memorable. Still, the lengthier cessation of services seemed to heighten uncertainty, creating some additional selling.

The most recent shutdown occurred in 1995 – 1996, with the government closing its doors in two separate incidents: 5 days between Nov. 13, 1995 and Nov. 19, 1995 and a second time that spanned 21 days from Dec. 15, 1995 to Jan. 6, 1996 (Washington Post, AP, NBC).


Investors must have had their minds on other matters because the S&P 500 Index gained 4.4% from beginning to end (St. Louis Federal Reserve data), only to give back more than half the advance in the two days that followed the resumption of services.

All of this may be a moot point if the House acquiesces and keeps the government funded for say 3-4 weeks without the Obamacare provision, but we’d be revisiting the matter at the end of the month.

This leads us to the next issue – the government will run up against the debt ceiling later in the month, which means it will no longer have the authority to borrow to pay its bills by Oct. 17 per the U.S Treasury (Wall Street Journal). The Congressional Budget Office allows for an additional 5 – 14 days.

If no deal is reached, the U.S. would technically default on its debt for the first time. Unlike government shutdowns, there is no precedent for the markets.

The last bruising battle over the debt ceiling took place in the summer of 2011, sparking a downgrade in the U.S. credit rating by Standard & Poor’s. Recall the heavy volatility we experienced in equities. But the debate was also accompanied by an expanding debt crisis in Europe and a U.S. economy that appeared to be running out of gas.

Currently, the U.S. economy is plodding along and is even showing some signs of firming. There are still problems in Europe, but nothing that has grabbed headlines like we saw in 2011.

However, the stakes surrounding a technical default are very high because it could ripple through the entire global financial system.

Backed by Treasuries that are widely viewed as risk-free, the dollar is the world’s reserve currency.

Not that Treasury prices can’t fall in the face of rising interest rates, but the risk-free moniker Treasuries have earned is due to the bedrock principal that any purchase will be repaid in full at maturity, period. Not a day late or week late but on the day of maturity, including interest.

Some have suggested the U.S could prioritize payments, such as interest on the debt, social security, national defense, etc. Others argue that with hundreds of thousands of invoices paid annually, the government has no system in place to sequence outlays.

Odds still favor an increase in the debt ceiling before the deadline, even if lawmakers simply kick the deficit can down the road, since setting sail into uncharted waters brings about a whole new set of unwanted risks.

Good news: A number of leading indicators have been pointing to momentum, including today’s unexpected rise in the ISM Mfg Index: 55.7 in Sep to 56.2 in Oct. The leading indicators have been rather impressive over the last couple of months.

Warmest Regards,

Donald S. Loveless CFA CFP EA

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Choosing a Financial Advisor: a Different Perspective

As Millennials (those born between 1985 – 2000) are starting to reach the age of having some important financial choices to make, an interesting question has been voiced.  How important is it to stay with your parents' Financial Advisor?

It is important, as you transition to this vital part of your financial life, that you are comfortable with your Financial Advisor.  It may be the same advisor that your parents have entrusted over the last few decades, and has watched you grow from an infant to an adult.  You may have every confidence that this advisor understands you both as a client and an individual, and will work best to achieve your goals.  On the other hand, perhaps your financial goals & dreams completely differ from your parents, and you feel as though their advisor may not be the right fit for you?  Servicing our clients is an honor, not a right, and we advise to explore your options as far as your comfort level with the advisor that you ultimately choose.  Finding an advisor that comprehends your vision & goals will be a great first step in the long road that is financial planning. Studies have shown that more investors are transitioning to Fee-Only advisors with a fiduciary duty to their client, as opposed to a commissioned broker. These investors are finding that a custom tailored financial plan is much more beneficial to reaching their goals.  This advisor may be found a bit further down the road, or they might just be right under your nose...


Keeping a Cool Head...

With the constant “doom & gloom” rhetoric, that seems ever so popular in mainstream news, it’s important to remember to look at the big picture, regarding your personal finances. Current events such as the conflict in Syria, stock market volatility, unemployment rates & the current arguments about healthcare, all play a critical role in day to day market activity. It’s easy to get wrapped up in the emotions of these daily events. As long term investors, though, emotions can easily cause more damage than good. Throughout numerous wars, scares & doomsday scenarios, stocks (as measured by the S&P 500) have risen 9,649.74% since 1950…………and that does not include dividend reinvestment!

It’s important to review your risk tolerance to see if overall trends in your personal life have changed your financial outlook. When thinking long term, though, you must be able to filter out trivial effects of the daily news, and maintain focus on your long term financial goals.


Kiplingers Ranks Billings MT #6!

Billings MT ranked #6 on Kiplinger's 2013 Greatest Places to Live!  Qualities included an energetic community, low unemployment & vibrant economy.  Kiplingers Sept. issue is available now.

More Investors Seek 'Independent' Advisers—But 'Independent' Has Multiple Meanings


In the aftermath of the financial crisis, the ranks of independent financial advisers have grown, as investors have left Wall Street in search of more objective guidance.

The crisis bred "a certain level of distrust of Wall Street brokerage firms," says Bing Waldert, a director at Boston-based research firm Cerulli Associates. "Independents," he adds, "have been the chief beneficiaries."

Questions to Ask a Financial Adviser

To find a good fit, interview and evaluate several candidates. Be sure to ask the following questions:

What experience do you have, especially with people in my circumstances?

Where did you go to school?

What is your employment history?

What licenses do you hold?

Are you registered with the SEC, a state, or the Financial Industry Regulatory Authority (FINRA)?

What products and services do you offer?

Can you recommend only a limited number ofproducts or services to me? If so, why?

How are you paid for your services?

What is your usual hourly rate, flat fee or commission? Please estimate the possible costs I will pay based on the work to be performed.

Have you ever been disciplined for any unlawful or unethical actions in your professional career or been sued by a client?

For registered investment advisers (RIAs), will you send me a copy of both parts of your ADV registration form?

Will I deal only with you or with others at your firm?

Do you have a conflict of interest I should know about?

Sources: Certified Financial Planner Board of Standards, Securities and Exchange Commission

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