California Fiscal Update

October 1, 2012

August sales tax collections were down 20% compared to last year and total revenues are down 5.5%. Even though income taxes rose 11.6%, corporate taxes declined over 70%. Meanwhile California’s spending is almost $3 billion more than was budgeted. Hmmm, not the best way to deal with an out of control budget.

The graph above is courtesy of well known financial blogger Mish Shedlock.

The 20% decline in sales tax revenues for August is perhaps the most worrisome signal that California may be heading into recession as people have clearly cut back on their spending. California, often viewed as a bellwether for the trajectory of the rest of the country, may be leading the way into a broader slow down. A 20% decline in sales taxes revenues year over year is substantial and I suggest you keep this data point on your radar screen during the coming months.

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“What’s Next Lecture Series” Event Sponsored by Pacific Mountain Advisors!

October 12, 2011

We would like to invite community members from the Santa Cruz Area to join us for a What’s Next Lecture Series Event to be held next Wednesday October 19 at 7:30 p.m. at the UCSC Music Center Recital Hall.

Pacific Mountain Advisors is sponsoring this lecture by Jacqueline Novogratz, author of The Blue Sweater: Bridging the Gap Between the Rich and the Poor in an Interconnected World.

We hope you can join us for what’s sure to be a thought provoking discussion. Make sure to save 45% by purchasing your tickets in advance here online.

We look forward to seeing everybody there!


Part Three: Retirement in Times of Uncertainty – Managing Retirement Income

July 8, 2010

For years, many retirees and people near retirement could bask in the near certainty that with sound asset allocation and a long term investing perspective, they could expect a steady and possibly even a growing stream of income during retirement.  Unfortunately, the recent global credit crises and ensuing recession has forced many investors to reevaluate their retirement income strategy.  Given that we are in a period of unprecedented uncertainty and global economic turmoil, what can be done to help provide a stress free retirement?

Clearly define your current and future income needs
The amount of income you require changes over time and is different for everyone but there are generally four phases that are relevant to most individuals.

  1. The Spending Spree: During the first phase, people tend to initially spend a bit more than they did while working because of pent-up demand for activities like traveling and remodeling.This phase typically last 2 to 4 years and spending tapers off over time.
  2. Reversion to the Mean: In the second phase, expenses tend to decline back to the pre-retirement level as the activities on people’s “want-to-do” list gets completed.
  3. The Golden Years: During the third phase, overall expenses usually decline even further as people settle into their golden years and become less active. However, a notable exception is that health care expenses generally rise during this stage and should be taken into account as part of any comprehensive financial plan.
  4. Accelerating Expenses: In the fourth phase, expenses can accelerate significantly due to the increased cost of health care and senior support services. Although this phase is typically the shortest, it tends to consume a relatively large portion of total retirement assets.

An understanding of these phases provides valuable insight into your potential  income needs and enables you to proactively plan for the future. It will also be helpful to consider both essential and discretionary income needs so that you can build some flexibility into your ultimate plan in order to respond to the many unanticipated future events that may occur.

Conservatively assess where you stand now
After projecting your future income requirements, the next step is assessing the likelihood that your resources will be adequate to meet these objectives. You should work with your financial advisor to establish reasonable assumptions for income growth, investment return, tax rates, inflation, etc. so that you will have a general idea regarding how close you will be to meeting (or exceeding) your goals. When making assumptions, it is best to use conservative estimates so that you won’t be taken by surprise by any unseen bumps in the road.

Create a strategy for success
After determining where you currently stand in relation to your goals, you can make adaptive choices to ensure success or you may decide that you don’t need a second vacation home and maybe your children can take on student loans or work part time to help cover education expenses. Delaying retirement, working part time and selling a primary residence are all common tactics for getting your financial plan back on track.

It’s also important to speak with your financial advisor about tactical distribution strategies such as whether to take distributions from your Roth or regular IRA first and what allocation of income versus growth investments is optimal.

Regularly review your strategy and progress
Life is an ongoing process of adapting to change and any retirement income strategy must be regularly reviewed and revised to ensure long term success. Changes to tax law, economic conditions, your personal life and health challenges are all things that could affect your strategy. Meeting with your financial advisor at least annually will help you stay informed and on track to meet your goals. Independent studies have shown that people who meet at least once a year with their financial advisor are more likely to feel confident about their future and to successfully achieve their retirement goals.

If you have any questions or concerns about your retirement strategy and progress, we would be happy to have a conversation with you so feel free to give us a call or send us an email.

All the best,
Pacific Mountain Advisors Team


Part Two: Investing in Times of Uncertainty – Low Risk and High Yield Strategies

March 26, 2010

In our previous post we emphasized the importance of having a comprehensive financial planning review as way to manage uncertainty and the never ending process of change. An important fundamental aspect of any personal financial planning review should include an analysis of your investment portfolio strategy. An investment strategy review enables you to incorporate new research and adapt to actual and probable changes in the global macro-economic landscape as well as your personal financial situation.

Since October 2007, we have seen the S&P 500 move from 1,565 down to 666 and then back up to 1,180. During that time, economic analysts made a wide range of predictions including a “small correction in housing” to a complete collapse of the financial markets leading to a second depression. Even now, there is nothing close to consensus on where the economy and market are heading due to pervasive and unprecedented systematic uncertainty. On one end of the spectrum, we have analysts forecasting a 1937 style double dip recession arising from sovereign defaults, deterioration in the commercial real estate market and a prolonged period of above normal joblessness which will eat away at consumer spending. However, there are analysts on the other side of the spectrum predicting a very robust recovery due to pent-up consumer demand supported by the expanding middle class in emerging markets.

The uncertainty arising from these widely disparate outlooks can make investment decisions all the more challenging. Fortunately, the ability to predict the future is not a requirement for successful investment management. At Pacific Mountain Advisors, we have observed over recent years that there is a suprisingly small correlation between performance metrics such as earnings/GDP growth and the prices of stocks. For example, the S&P 500 had one of its best performing years in 2009, even though unemployment was rising and GDP was contracting. Markets initially recovered last year as investors cheered that we had avoided a total global economic collapse, however, the subsequent stages of the rally took place because investors began speculating that economic conditions would dramatically improve resulting in the much ballyhooed V-shaped recovery. Although we would like to believe that the speculators are correct, we feel that it is wise to remain cautious and flexible until economic facts support this belief.

It’s easy to get caught up in the black and white hype of boom or bust, however reality is much more colorful and digging your heels in with either camp forces you into a situation where heads, you win – tails, you lose.  By remaining flexible and diversified we are better able to better manage volatility, reduce risk and benefit from the widest possible range of outcomes. For these reasons, we continue to be rooted in the core fundamentals of our value oriented  investment methodology such as diversification, cash flow and tactical asset allocation/rebalancing.

Since the founding of Pacific Mountain Advisors, our focus on intrinsic value, demand-based fundamentals and portfolio cash flow has helped us to substantially outperform the overall stock market on a risk adjusted basis. Although some aspects of our proprietary methodology have changed, our overarching principles remain untouched. We seek out investments that  A.) Are more conservatively valued relative to the overall market, B.) Have a history of paying substantial dividends that are growing (historically, reinvested dividends have accounted for over 40% of the stock market’s total returns), and C.) Stand to benefit from secular or demand driven growth trends such as clean energy or emerging economies. This low-valuation and high dividend approach enhances long term investment returns while also providing shorter term price support.

It is generally believed that nobody can reliably predict the future, however, not only is that technically untrue (you can predict that the world will continue to change and will be much different ten years from now), it also completely fails to address the real issue that you do not need to predict the future in order to effectively manage investments. Time spent trying to see into a crystal ball will surely be less productive than working with your financial advisor to  implement a diversified investment strategy customized to your individual situation and reviewing it on a regular basis. This will help ensure better outcomes by keeping your portfolio up-to-date with the constantly evolving markets as well as changes in your investment goals and preferences.

“I don’t look to jump over seven foot bars; I look for one foot bars that I can step over”.
– Warren Buffet

All the best,
Pacific Mountain Advisors Team


Part One: Planning in Times of Uncertainty – Review, Revise, Repeat

March 11, 2010

This may sound a bit like a Zen koan but if you are certain that uncertainty will continue and even increase then at least you are certain about that. Greek philosopher, Heraclitus first expressed this concept thousands of years ago with his observation that “the only thing that is constant is change“.

It is widely understood that the pace of change on the planet is accelerating and dramatic shifts in economic, social and political realms will occur with greater frequency. Unexpected and potentially disruptive events will continue to influence and shape our world during this period of transition as we move forward into the this next millennia. I’m hopeful about the long-term prospects for the economy but pragmatic regarding the shorter term effects that this increased volatility will have on individual lives and communities. However, expecting the unexpected allows you to broaden your perspective about what is possible and to position yourself with a strategy that will provide you with greater flexibility for responding to these issues.  Risk is always present, but at least we can manage our exposure to it. This awareness informs how we approach both portfolio management and financial planning for our clients.

Having an up-to-date comprehensive financial planning strategy that reflects changes in the global  investment landscape as well as any changes or probable changes to your financial situation and goals will help you make more coherent decisions and better navigate through these uncertain times. We have recently revised our fee and service model to incorporate comprehensive planning reviews for most of our clients. Below, are some of the areas of interest our clients have expressed, which serve to underscore the need for a regular planning review.

  • Retirement Planning: Recent studies indicate that retirement planning is one of the most significant concerns of U.S. workers and also one of the most neglected issues. Many Americans do not even have a financial plan and those that do have had to revisit their assumptions due to a change in employment, household income and in the value of their real estate and/or investment portfolio. The past few years have underscored the importance and value of regularly reviewing your retirement plan, investment assumptions and implementation strategies. People should assess the changes in their lives on a regular basis and incorporate the new assumptions into their overarching financial plan to reflect current realities and achieve the best possible outcome.
  • Monthly Cash Flow Analysis: Furloughs, lay-offs and declining revenues for the self-employed have put pressure on many household budgets, emphasizing the importance of reviewing your budget regularly and making revisions to ensure your financial flexibility.
  • Education Funding: Many college funding plans have been damaged by the market over the past few years. Coupled with the continued rise in education costs, these plans need to be reviewed and revised to reflect the current reality. Some may add more funds to make up the gap, alter investment parameters for a larger return, or simply delay withdrawal until Junior or Senior year.
  • Mortgage Management Strategies: Current mortgage rates are at historically low levels and the interest income that can be made on deposits are minuscule. For people in a position to refinance, it may make sense to pay off the balance and become debt free.

The most valuable aspect of the planning review is the dialogue that takes place during the review process. The facts inform the discussion but the iterative process of sorting through various options and concerns provides the insight one needs to make intelligent, informed decisions.

“Planning is bringing the future into the present so that you can do something about it now.”
– Alan Lakein

All the best,
Pacific Mountain Advisors Team


Beyond the Season of Giving: Tax Deductible Gifting

January 1, 2010

We hope everyone had a great holiday season and are enjoying 2010. The season of giving is behind us again and Pacific Mountain Advisors would like share with you an opportunity to give within our community while promoting financial literacy and economic justice at the same time.

Santa Cruz Community Ventures (SCCV) is non-profit (501(c)3) arm of the Santa Cruz Community Credit Union that teaches financial literacy and provides secondary education matching funds for financially distressed foster-youths in their teens. Under the Individual Development Account (IDA) program at SCCV, each young person in the program is required to save $500 from their part-time jobs while they finish high school, and SCCV will provide financial education and a 2-1 match of their savings  for a total of $1,000 (more information here).

At Pacific Mountain Advisors we value financial literacy and believe that an incentive program such as this is an excellent way to educate and promote positive behavior. We want to encourage your support of this excellent program and will offer a matching contribution for the first $500 contributed by clients and friends. Please help us promote financial literacy in our community by making a donation to Santa Cruz Community Ventures and the IDA program. You can donate online Here or write checks payable to “Santa Cruz Community Ventures IDA Program” and send them to:

Santa Cruz Community Ventures
IDA Program
Attn: Ellen Murtha
324 Front St.
Santa Cruz, CA 95060

Please feel free to give us a call with any questions that you may have regarding charitable donations and their tax benefits.

Wishing you all the best,
Pacific Mountain Advisors Team


Why is Capital Preservation so Important?

November 17, 2009

As the economy has rallied from the March lows, analysts have become increasingly bullish and investment managers  have been growing greedier by the day for every last point on the S&P 500. Unfortunately, many of these people have forgotten one of the key tenets of asset management – Capital Preservation. I will illustrate this point with a simple graph and some sage words of wisdom from legendary investor, Warren Buffett.

“You only have to do a very few things right in your life so long as you don’t do too many things wrong.” – Warren BuffettMr. Buffett must have had this graph in mind when he said that but you don’t need a chart to know that bigger losses mean longer required periods of time to break even. What is interesting though, is that the relationship between losses and years to recover is not linear. This means that each percent of lost money requires an even greater percent gain to get back to even. You can see this effect at work on our portfolio performance as well. We have outperformed substantially on the downside so that we are not forced to take on too much risk by investing aggressively on the upside. This bring us to the next point.

“Be fearful when others are greedy and be greedy only when others are fearful.”   – Warren E. Buffett

At the peak of market excess in 2007, we began pulling client money out of equity markets and putting it into fixed income and high yielding stocks. We felt that overall economic fundamentals were deteriorating and took pause with how investors were scrambling into the riskiest stocks to get out sized returns but with no regard for the downside potential. In other words, the entire market was pricing in only the rosiest of potential outcomes which left little room on the table for additional gains.

Market pundits are now saying that the recession is over for good and that we are in a new bull market. While this is possible, we remain somewhat skeptical because once again, analysts are pricing in increasingly rosy forcasts and investors are rushing to ‘catch the rally’ with little regard to what could happen if the forecasts don’t come true.

We remain well positioned for a wide range of market outcomes and we will continue to closely monitor the markets and make adjustments to our strategy as new information emerges and the situation evolves.

All the best,
Michael