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Mid Quarter Newsletter – December 2019

No Profits? No Problem!

In the venture capital industry, a “unicorn” refers to a technology startup company that has reached a private valuation of $1 billion. While few and far between in the past, these types of companies are commonplace in today’s market, and, more surprisingly still, most are actually losing money.  Uber, Lyft and Peloton are a few high-profile examples of recent initial public offerings (IPOs) that are not profitable. Of late, the public markets have not been kind to these investments, as they are all trading well below their peak prices (see table below).

The most outrageous example has been the debacle associated with the collapse of the IPO plans for WeWork. A few short months ago, the office rental company was expected to offer shares to the public at a total business valuation of $47 billion. However, in the third quarter, WeWork reported a net loss of $1.25 billion despite having revenue for that same quarter of $934 million! When investors balked at these sky-high valuations, the company was forced to withdraw its IPO, which also led to the downfall of its charismatic founder, Adam Neumann.

Given the run-up in technology stocks in the past several years, it’s obvious that many startups are positioning themselves as tech companies to command these excessive valuations. Most of these companies, however, are not true technology companies. They all use technology to run their businesses, but WeWork is basically a real estate leasing company. Founders, early investors and investment banks have bought into these “story stocks,” resulting in excessively high pricing for these IPOs. Perhaps rationality is coming back to the market as evidenced by the recent poor stock performance of some of these name brands, along with the withdrawal or deferral of other planned IPOs such as with Airbnb. When markets eventually calm down, we’ll inevitably return to a time when profits actually matter more than stories.

How Will Impeachment Affect the Markets?

As we send out this article, it seems highly probable that President Trump will become the third president in U.S. history to be impeached. However, it’s important to note that impeachment does not necessarily mean removal from office. Our seventeenth president, Andrew Johnson, and our forty-second, Bill Clinton, the two previous presidents to be impeached, were not removed from office (Johnson narrowly avoided conviction in the Senate by 1 vote!). As an aside, Richard Nixon actually resigned from office before being formally impeached.

So how is impeachment different from removing a U.S. president from office? Impeachment in the U.S. is the process by which the House of Representatives files charges against a government official, and in any ensuing trial, the Senate would determine whether to convict and remove that official from office. While only a simple majority vote is required by the House of Representatives to initiate impeachment, a two-thirds vote is required in the Senate to convict the president. Based on party lines, the House is likely to vote for impeachment. However, assuming all Democrats in the Senate voted in favor of conviction, 20 Republicans would still have to cross party lines and vote for a conviction for the president to be removed from office.

How this relates to the market

Given the relatively limited information, it’s hard to draw a strong conclusion about how impeachment will impact the markets. The market was up decently during Clinton’s impeachment and down a fair amount around Nixon’s impeachment hearings. However, the economic forces at the time may have had a much larger impact than the impeachment proceedings themselves. More specifically, the Clinton impeachment happened during the tech boom of the late ’90s while Nixon’s hearings paralleled the OPEC oil embargo and runaway inflation of the early ’70s.

Assuming everything follows party lines, it’s likely that President Trump will be impeached but not convicted and removed from office. Since the probability of this outcome is really high, the market has essentially already priced it in at this stage, meaning this outcome will likely be a nonevent for stocks. On the other hand, if there were to be a surprise conviction in the Senate, then we would expect heightened volatility.

Welcome Austin and Milan

Austin Overholt
Private Investments Administrator

Austin Overholt joined the Private Investments Team at Morton Capital in May 2019, and is integral to the team’s alternative investment coordination and information management. He is a Marine Corps Veteran and, prior to transitioning into the financial services industry, was the Associate Director of the OC Learning Center in Westlake Village. Austin earned his Bachelor of Arts degree in communications with an emphasis in business from California State University, Channel Islands, and his master’s from Pepperdine University. Austin lives in Camarillo with his wife, Megan, and their two children and enjoys being outdoors, off-roading, and barbecuing.

Milan Pfeisinger
Research Analyst

Milan Pfeisinger joined Morton Capital in June 2019. He is a research analyst and works closely with the investment team. Milan previously worked as a cost analyst at Warner Bros. Entertainment. He is originally from Austria and moved to the United States to attend college. He graduated from California State University, Northridge, with a Bachelor of Arts degree in economics and a minor in finance. Milan recently passed the Level II exam of the CFA® program. Besides work, he enjoys taking long strolls with his pug, Zorro.

Financial Bites Lunch Series

Our Financial Bites lunch series has been a great success! If you haven’t joined us for any of the previous sessions, we encourage you to attend any of the remaining lunches in the new year.

Our next session, on life insurance and long-term care, on Friday, January 24, touches on the “when and when not to” rules on buying life and long-term care insurance policies.

You can RSVP to any of these events by visiting mortoncapital.com/financialbites.

This past September, Wealth Advisors Joseph Seetoo and Celia Meagher presented on budgeting.

Watch the video below and learn everything from what savings/spending strategies you should use to the importance of maintaining a good credit score.

The Six Way Investors Differ

Carl Richards, a CERTIFIED FINANCIAL PLANNER™, author and New York Times columnist, wrote an article comparing the good and the bad behavioral differences of investors. To read the article in full, please click on the below link.

Read Article >

Welcome to the World, Baby Harlowe!

We’re thrilled to announce the newest baby to join the MC family. Associate Wealth Advisor Sarah Ellis and her husband, Justin, welcomed their third baby girl, Harlowe Liv, on November 7. Congratulations to their beautiful family!

Financial Bites – Investments Video

The fourth installment in our new Financial Bites lunch series, Investments, was superb! In this session, our advisors discussed profitable investment behaviors, busted investment myths and shared helpful processes to begin investing like a pro. Thank you to all our attendees as well as our outstanding wealth advisors, Chelsea Watson and Bruce Tyson, who presented.

Click on the above image or visit this link to watch our investments session: https://vimeo.com/mortoncapital/fbinvestments

We hope you find this video valuable. Please feel free to share this link with family and friends and on your social media channels. Any feedback you have would be extremely valuable to our team, including any recommendations of topics you would like us to present on in the future. Financial Bites is a complimentary series and our upcoming sessions are filling up fast, so we encourage you to RSVP soon. Click on the link below to view all sessions and RSVP today!

https://mortoncapital.com/financialbites

We hope to see you soon and thank you for your continued support of Morton Capital.

The MC Team

White Paper – Multiple Advisors vs. One Advisor

Working in finance, it’s become clear to me that decisions surrounding money are commonly influenced by feelings. Those feelings can range from happiness and comfort to fear and greed—the list goes on and on. A natural result of these varied emotions is that people are often hesitant to use one advisor because they are concerned about “putting all of their eggs in one basket.” The choice to have one advisor or multiple advisors is very personal, but it shouldn’t be emotional.

Financial Bites – Tax Planning for Individuals Video and Update

Tax Planning for Individuals, the third event in our new Financial Bites lunch series, was a huge hit. In this session, our advisors explained why tax planning is vital to a healthy financial life and how to put money back in your own wallet. Thank you to all our attendees as well as our outstanding wealth advisors, Bryce Snell and Wade Calvert, who presented.

Click on the above image or visit this link to watch our tax planning session: https://vimeo.com/mortoncapital/fbtaxplanning

We hope you find this video valuable. Please feel free to share this link with family and friends and on your social media channels. Any feedback you have would be extremely valuable to our team, including any recommendations of topics you would like us to present on in the future. Financial Bites is a complimentary series and our upcoming sessions are filling up fast, so we encourage you to RSVP soon. Click on the link below to view all sessions and RSVP today!

https://mortoncapital.com/financialbites

We hope to see you soon and thank you for your continued support of Morton Capital.

The MC Team

Financial Bites – Budgeting Session Video and Update

The second event in our new Financial Bites lunch series, Budgeting, went off without a hitch. In this session, our advisors honed in on the keys to a successful budget and how to get your financial footing. Thank you to all our attendees as well as our phenomenal wealth advisors, Joe Seetoo and Celia Meagher, who presented.

Our goal is to make this information clear and accessible to everyone. This session focuses on the importance of checking your financial pulse – everything from what savings/spending strategies you should use to the importance of maintaining a good credit score.

Click on the above image or visit this link to watch our budgeting session: https://vimeo.com/mortoncapital/fbbudgeting

We hope you find this video valuable. Please feel free to share this link with family and friends and on your social media channels. Any feedback you have would be extremely valuable to our team, including any recommendations of topics you would like us to present on in the future. Financial Bites is a complimentary series and our upcoming sessions are filling up fast, so we encourage you to RSVP soon. Click on the link below to view all sessions and RSVP today!

https://mortoncapital.com/financialbites

We hope to see you soon and thank you for your continued support of Morton Capital.

The MC Team

Quarterly Commentary – Q3 2019

“May You Live in Interesting Times”

The above phrase is an English translation of a traditional Chinese omen.  While it seems like a blessing, it is actually meant ironically and foreshadows a period of disorder and trouble. The omen feels appropriate given our current era of political and economic instability.  With the combination of continued trade tensions between the U.S. and China, slowing global growth, the re-emergence of hyperactive central banks and rising geopolitical uncertainty, things are a little more interesting than we would like.

Yet despite these forces of turmoil, both stock and bond markets have continued their steep ascent.  Most major stock indices are up double digits for the year, and even core bonds are up a surprising 8.5% for just the first nine months of 2019.  The third quarter did start to show some cracks, however, as smaller U.S. stocks and international stocks lost some ground even as large U.S. stocks and core bonds posted relatively strong performance.  The standout asset class for the quarter, though, was gold, as the proliferation of negative-yielding bonds has made the case for owning gold even stronger. The table below summarizes the third-quarter and year-to-date (YTD) performance for selected indices.

“But Why Is the Rum Gone?”

The 2003 film Pirates of the Caribbean: The Curse of the Black Pearl saw a motley crew of pirates (led by Johnny Depp’s Captain Jack Sparrow) hunting for treasure, but also with a running gag about the pirates’ desperation for more rum.  Investors today are thirsty for yield in a similarly desperate fashion.  While the precipitous drop in interest rates so far this year has resulted in strong price appreciation for bonds, investors are now asking themselves, “But why is the yield gone?”

The yield on 10-year U.S. Treasury bonds collapsed from 2.68% at the beginning of the year down to 1.67% by the end of the third quarter. The cause of the drop is mainly due to slowing global growth and international trade.  While these heightened risks have dented CEO confidence and business investment activity, U.S. consumers (accounting for 70% of the U.S. economy) have remained resilient in their outlook and spending.  The Federal Reserve seemed to err more on the side of concern, cutting rates twice during the quarter.  Significantly, global central banks are once again using monetary policy as a panacea for all problems.  Their re-introduction of unconventional monetary policies has resulted in record levels of negative-yielding bonds, with roughly 27% of global bonds sporting negative yields by the end of the third quarter.

How Can a Bond Yield Be Negative?

Negative interest rates are a remarkable and counterintuitive concept.  The only reason this concept exists is that central banks across the globe are desperately trying to stimulate their economies, and negative rates are a key part of their plan to force banks to increase their lending activity.  Historically, banks that chose to hold higher levels of cash reserves would make some positive return on those reserves.  However, both the European Central Bank and the Bank of Japan have set those reserve rates at negative levels.  The central banks hope that charging banks to keep their money idle will incentivize them to lend the money to businesses and consumers, thus stimulating their respective economies.

Negative rates on these bank reserves are one thing, but negative-yielding bonds are a different animal altogether.  In a normal environment, lenders receive interest on their loans as compensation for the default risk that they are taking on.  That rate of compensation varies, of course, depending upon the perceived level of risk.  A negative-yielding bond, on the other hand, is typically issued with zero percent yield and at a price above par. By the time the bond matures, the price will drop back down to par, ensuring that the investor who holds the bond to maturity will incur a loss.  A numeric example would be an investor who pays $102 for a bond yielding 0% that matures at a price of $100.  If that investor holds the bond to maturity, he or she will lose $2, resulting in an effectively negative yield or return.

Given the above, one may wonder who in their right mind would buy negative-yielding bonds?  There are a number of non-economic or forced buyers out there, such as European banks and index funds, which must invest in government bonds for regulatory or investment policy reasons.  In addition, speculative buyers may purchase these bonds to try and profit from potential price appreciation, but do not intend to hold these bonds to maturity.

Why Do Negative Bond Yields Matter?

There are potential consequences to this strange experiment with negative rates and yields.  The most obvious has been the steep appreciation in the prices of risk assets (e.g., stocks, bonds, real estate, etc.) as savers have been forced to take on more risk to maintain their lifestyles.  For example, the yields on bank CDs and Treasury bonds no longer meet most savers’ income needs so they are forced to seek higher-yielding returns in the stock market. This has led to a decoupling of asset prices from the underlying fundamentals and heightened valuations.  Also, with the proliferation of cheap debt, corporations have become over-leveraged to the point where many companies will be vulnerable to defaults when rates eventually rise.  Most importantly, however, we believe that these types of extreme policies have actually suppressed the very economic growth that central banks are trying to create.  With cheap debt comes the misallocation of capital.  What that means is that weak companies are able to survive much longer than they should be able to, which in turn takes away growth opportunities from stronger companies.  The end result is that weak companies that should go out of business end up puttering along, thereby keeping stronger companies from flourishing as they should.

Unsurprisingly, there is no convincing evidence that setting short-term policy rates to zero or below and buying large amounts of longer-term bonds has stimulated the economies of Europe and Japan.  These policies were effective short-term tools in the aftermath of the Great Recession to stabilize financial markets.  However, the two long-term drivers of any country’s economic growth are productivity and the growth of its labor force.  With productivity stagnant over the past decade, population growth has become even more important than in decades past.  Population growth trends, however, are negative in both Japan and the developed European countries.  In the U.S., structural changes within the economy and a slowing immigration trend have also combined to reduce growth potential relative to the past half-century.

There is no way to know how long traditional stock and bond markets will continue to run without any apparent regard for the fundamentals.  While it seems like an obvious decision not to invest in negative-yielding debt, it is somewhat less obvious where to invest given the heightened levels of risk and the wide ranges of return scenarios with more traditional asset classes.  In view of this, we have chosen to position our client portfolios away from traditional core bonds and focus instead on specialized segments of the bond market in an attempt to generate reasonable returns regardless of what happens with interest rates.  We have also chosen to trade market risk for illiquidity in a portion of client portfolios as these less liquid investments are often driven by factors beyond just economic growth and interest rate movements.  In interesting times such as these, the more true diversification and consistency we can incorporate into portfolios, the better we sleep at night.

Please do not hesitate to contact your Morton Capital wealth advisory team if you have any questions or would like to review your portfolio or financial plan in more detail.  As always, we appreciate your continued confidence and trust.

Morton Capital Investment Team

 

 

Disclosures

This commentary is mailed quarterly to our clients and friends and is for information purposes only.  This document should not be taken as a recommendation, offer or solicitation to buy or sell any individual security or asset class, and should not be considered investment advice. This memorandum expresses the views of the author and are subject to change without notice. All information contained herein is current only as of the earlier of the date hereof and the date on which it is delivered by Morton Capital (MC) to the intended recipient, or such other date indicated with respect to specific information. Certain information contained herein is based on or derived from information provided by independent third-party sources. The author believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information. Any performance information contained herein is for illustrative purposes only.

Certain private investment opportunities discussed herein may only be available to eligible clients and can only be made after careful review and completion of applicable offering documents. Private investments are speculative and involve a high degree of risk.

The indices referenced in this document are provided to allow for comparison to well-known and widely recognized asset classes and asset class categories. Q3 returns shown are from 06-28-2019 through 09-30-2019 and the year-to-date returns are from 12-31-2018 through 09-30-2019.  Index returns shown do not reflect the deduction of any fees or expenses. The volatility of the benchmarks may be materially different from the performance of MC.  In addition, MC’s recommendations may differ significantly from the securities that comprise the benchmarks.  Indices are unmanaged, and an investment cannot be made directly in an index.

Past performance is not indicative of future results.  All investments involve risk including the loss of principal. Details on MC’s advisory services, fees and investment strategies, including a summary of risks surrounding the strategies, can be found in our Form ADV Part 2A. A copy may be obtained at www.adviserinfo.sec.gov.

Financial Bites – Retirement Planning Session Video and Update

Recently we hosted the first event in our new Financial Bites lunch series. The session focused on retirement planning and was an incredible success. We are grateful to everyone who attended and to our outstanding wealth advisors, Chris Galeski and Chelsea Watson, who presented.

Clients often come to us asking, “How much do I need to save for retirement?” This session addressed this question by focusing on smarter ways to save, how to more efficiently invest those savings, and how to balance your normal expenses with future costs.

Click on the above image or visit this link to watch our retirement planning session: https://vimeo.com/mortoncapital/fbretirementplanning

We hope you enjoy this video of the event. Please feel free to share this link with family and friends and on your social media channels. Any feedback you have would be extremely valuable to our team, including any recommendations of topics you would like us to present on in the future. Financial Bites is a complimentary series and our upcoming sessions are filling up fast, so we encourage you to RSVP soon. Click on the link below to view all sessions and RSVP today!

https://mortoncapital.com/financialbites

We hope to see you soon and thank you for your continued support of Morton Capital.

The MC Team

Mid Quarter Newsletter – September 2019

Interest Rate Movements – How to Make Sense of Them?

At its July meeting, the U.S. Federal Reserve (Fed) lowered interest rates for the first time since December 2008. Officially, the Fed’s reasoning was that it was worried about inflation not hitting the desired 2% goal. But unofficially? They may have instead caved to market forces, political pressures and global trade tensions. Since then, interest rates on U.S. government bonds have fallen across the board, with the 30-year U.S. Treasury falling below 2% for the first time ever.

With all the talk of interest rates in the news, it can be easy to lose sight of what they actually are: simply the cost of borrowing money. In normal environments, interest rates are decided by the supply and demand for money. However, the Fed also has a hand in things—it sets the short-term rates at which banks can borrow either from each other or the Fed. When those interest rates rise, the rates that banks charge their customers for a loan (for providing a mortgage or starting a business, for instance) typically go up too. In theory, the rates that banks can pay their deposit customers should also rise, though miraculously that upward adjustment can sometimes lag pretty meaningfully behind any actual rate increases.  

Below, we take a more detailed look at how rising or falling interest rates generally affect us all, from consumers to corporations to the economy. 

So how do lower interest rates affect investors’ portfolios and financial goals? Many savers are being punished with the lower income that results from the Fed’s move to lower rates. Since yields on most bonds are so low in the current environment, otherwise conservative investors often have to move into riskier asset classes (like stocks) to try to maintain their income levels as interest rates decline. Rather than play that game, Morton Capital has elected to seek out strategies that are somewhat agnostic to moves in interest rates. Even though the future return prospects for traditional bonds just got a bit bleaker, we are fortunate to have other tools at our disposal to earn investors what we feel is attractive income without undue risk. 

Wealth and Legacy Planning – New MC Service

When Lon Morton first founded the company, he was driven by the desire to help people. In our business, helping others can take many forms, and over the years, many of you have experienced our broadened array of services to help meet this vision. This includes collaborating with you to define what it looks like to enjoy your wealth, sourcing investment opportunities to protect your wealth, and designing financial plans to organize your wealth. To further enhance our capabilities, we’ve added Brian Standing to the team, who has 12 years of experience as a wealth and legacy planner. His role is to have estate planning discussions with our clients as an additional component of our financial planning service. 

We recognize that estate planning can be emotionally daunting and time-consuming, and that it’s often difficult to ensure all the pieces of your financial life are organized in the way you want. In many cases, we’ve been a part of our clients’ lives for decades and personally understand family dynamics (such as the best way to have conversations with your children about wealth), values and intentions. This is why our advisors are now partnering with Brian to align your financial plan with your estate plan and ensure your wealth is transitioned according to your wishes.

We’re excited about this new offering and hope that you, our clients, will be too. At Morton Capital, we have a goal of empowering our clients to enjoy their wealth by organizing and simplifying their financial life. We believe this new offering should do just that. Please reach out to your advisory team if you would like to schedule a wealth and legacy consultation.

Welcome Brian and Adam

Brian Standing, Esq.
Wealth Planner

Brian Standing joined Morton Capital as a Wealth Planner in June 2019. From 2007 to 2019, Brian worked in private law practice in the area of estate planning and taxation. He received his JD from Southwestern Law School and earned his undergraduate degree from Loyola Marymount University. Brian is certified as a specialist in estate planning, trust and probate law by the State Bar of California’s Board of Legal Specialization. Outside of work, Brian enjoys spending time with his wife and three kids.

Adam Bartkoski
Finance and HR Manager

Adam joined Morton Capital in April 2019 as the Finance and HR Manager. He has almost 20 years of experience in financial services, including roles at Fidelity Investments and Fiduciary Network. Adam also spent two years as a volunteer with the Peace Corps, serving as a teacher for a school in Kharkiv, Ukraine. He earned a Bachelor of Arts degree in history from Texas A&M University.

Financial Bites Lunch Series

A few weeks ago, we kicked off our Financial Bites lunch series. This complimentary series covers the basics on a number of financial planning topics, such as investments, estate planning and long-term care. If you weren’t able to join us for our Retirement Planning session, we encourage you to attend one of the other six sessions over the next several months. 

Our next lunch, on budgeting, on Friday, September 20, focuses on the importance of checking your financial pulse – everything from what savings/spending strategies you should use to the importance of maintaining a good credit score. 

You can RSVP to any of these events by visiting mortoncapital.com/financialbites.

 

GET THE MOST LIFE OUT OF YOUR WEALTH (SM)

Quarterly Commentary – Q2 2019

One for the Record Books

The current U.S. economic expansion is now officially the longest in history, having just entered its 121st month. Shortly after the end of the second quarter, stock markets also hit all-time record highs. These milestones are juxtaposed against another less thrilling record: the current economic expansion has also been the weakest recovery since World War II.

While it is impossible to know how long the current expansion will last, economic data is flashing warning signs. Growth was already on course to slow this year as the fiscal stimulus boost associated with last year’s tax cuts has faded. The bigger drag, however, is stemming from the U.S. administration’s erratic trade policies, which has introduced further uncertainty in business investments.

History of U.S. Economic Expansions

Source:  National Bureau of Economic Research & Bloomberg

Synchronized Asset Class Appreciation

All asset classes, both risky and more conservative, surprisingly, have rallied strongly in the first half of the year.  This rally has occurred against a backdrop where global economic growth has slowed, trade tensions have persisted, large tech companies have faced regulatory scrutiny, and financial market distortions have deepened.  As we pointed out in our first-quarter client commentary, the most obvious explanation for the appreciation of asset classes across-the-board has to do with central banks’ renewed willingness to cut interest rates, thus raising virtually all asset class valuations.

The first half of the year saw a historic policy U-turn from a well-advertised “policy normalization” to a significantly more dovish stance by the U.S. Federal Reserve, which has also been adopted by the other three major central banks (European Central Bank, Bank of Japan and People’s Bank of China).  While history will tell the tale of the record-breaking U.S. economy and stock markets, it may fail to show how reliant financial markets have become on extraordinary accommodative monetary policies (i.e., zero or negative interest rates and multiple rounds of quantitative easing, or money printing) from the central banks.  The table below summarizes the second-quarter and year-to-date (YTD) performance for selected indices.

Source: Bloomberg. Please see important disclosures at the end of this commentary.

“History May Not Repeat Itself, But It Often Rhymes”1

Over the past decade, financial market participants have become conditioned to associate extraordinary monetary policies and central bank liquidity with higher asset prices.  This has in turn led to heightened speculation, as reflected in the surge of recent IPOs with negative earnings and the increasing number of “zombie companies” (companies whose interest expenses are larger than their earnings) in the market.  The result has been tremendous asset price inflation and steep valuations as prices have well outpaced the fundamentals.

Most investors are familiar with the concept of P/E (price-to-earnings) ratios as a reflection of stock market valuations.  When a stock goes up in price, it either does so as a result of improving fundamentals (i.e., increasing earnings) or based upon investor sentiment or expectations.  If the latter is the case, that stock is said to appreciate because of multiple, or P/E, expansion.  As illustrated in the chart below, in the current stagnant earnings growth environment, P/E ratio expansion has accounted for 92% of the year-to-date rally in the U.S. equity market.  Goldman Sachs research indicates that P/E expansion has also been responsible for nearly 30% of the bull market return since March of 2009.

____________________

1 Attributed to Mark Twain

S&P 500 Price Return Attribution

Source:  FactSet, Goldman Sachs Investment Research

Given the headwinds mentioned above, it is unreasonable to expect either earnings growth or multiple expansion to continue at such a pace, which suggests that investors cannot expect such strong returns over the next several years. In our opinion, central bank liquidity, low interest rates and passive investing in mega-cap U.S. growth stocks have pulled forward future investment returns.  We concede that no one can accurately predict the timing of an economic recession or stock market decline.  What we can do, however, is identify environments where investors face heightened risks and adjust our portfolios accordingly.  If equity market valuations revert to historical norms, investors who are only relying on traditional assets to meet their goals may face a very challenging path forward.  Our approach is to mix in strategies that exhibit less dependence on global economic growth in an attempt to provide more consistent returns for our clients in an otherwise uncertain world.

Please do not hesitate to contact your Morton Capital wealth advisory team if you have any questions or would like to review your portfolio or financial plan in more detail.  As always, we appreciate your continued confidence and trust.

Morton Capital Investment Team

____________________________________________

Disclosure Update

MCM recently filed an amendment to its Form ADV Brochure with the Securities and Exchange Commission to reflect some material changes since our last filing in March. Please click the link for a full copy of the amended ADV Brochure:
https://mortoncapital.egnyte.com/dl/vn7uYGXjaY.

This commentary is mailed quarterly to our clients and friends and is for information purposes only.  This document should not be taken as a recommendation, offer or solicitation to buy or sell any individual security or asset class, and should not be considered investment advice. This memorandum expresses the views of the author and are subject to change without notice. All information contained herein is current only as of the earlier of the date hereof and the date on which it is delivered by Morton Capital (MC) to the intended recipient, or such other date indicated with respect to specific information. Certain information contained herein is based on or derived from information provided by independent third-party sources. The author believes that the sources from which such information has been obtained are reliable; however, it cannot guarantee the accuracy of such information. Any performance information contained herein is for illustrative purposes only.

Certain private investment opportunities discussed herein may only be available to eligible clients and can only be made after careful review and completion of applicable offering documents. Private investments are speculative and involve a high degree of risk.

The indices referenced in this document are provided to allow for comparison to well-known and widely recognized asset classes and asset class categories. Q2 returns shown are from 03-31-2019 through 06-28-2019 and the year-to-date returns are from 12/31/2018 through 06-28-2018.  Index returns shown do not reflect the deduction of any fees or expenses. The volatility of the benchmarks may be materially different from the performance of MC.  In addition, MC’s recommendations may differ significantly from the securities that comprise the benchmarks.  Indices are unmanaged, and an investment cannot be made directly in an index.

Indices:

Past performance is not indicative of future results.  All investments involve risk including the loss of principal. Details on MC’s advisory services, fees and investment strategies, including a summary of risks surrounding the strategies, can be found in our Form ADV Part 2A. A copy may be obtained at www.adviserinfo.sec.gov.

Mid Quarter Newsletter May 2019

The Return of Trade Tensions

It’s hard to believe that it’s been over a year since President Trump launched us into a trade war with China. (We first delved into this issue in our second quarter 2018 client letter here.) While it appeared that progress was being made in negotiations toward the end of 2018, the recent breakdown in trade talks and escalation in tensions once again has this topic dominating news cycles.

As a quick reminder, a tariff is a tax specifically related to imports and exports that encourages consumers to buy less of the taxed good (whose price has now risen) and more of a cheaper, untaxed alternative. Effectively, a government imposes tariffs to try and benefit domestic producers by making imported goods relatively more expensive. There is much debate, however, regarding whether or not domestic producers truly benefit—for example,  U.S. farmers are actually among those most likely to suffer from the tariffs imposed to date.

Why are tariffs and the ominous-sounding trade war such big news? From all the hubbub, you might expect this to be a disaster for economic growth. The reality, however, is that the broad economy isn’t expected to take a big hit, even if the situation continues to escalate. Capital Economics estimates that the drag on the U.S. and China’s gross domestic product (GDP) will be minimal: around 0.4% for China, and 0.1-0.2% for the U.S. The effects, however, may be harsher on confidence and on financial markets. The uncertainty surrounding the tariffs and the lack of visibility regarding future escalations may cause businesses worldwide to limit investments and encourage consumers to become more cautious with their spending.

Free trade has been a major boost to global growth over the last several decades, with exports accounting for roughly 23% of the global GDP. Protectionist policies in the U.S. and abroad may threaten global growth going forward. Still, as precarious as the situation sounds, it’s only one of many uncertainties facing markets going forward. It’s important for investors to remain disciplined in their approach and stick to their financial plans, even when news cycles get a little feisty.

Welcome Olivia and Elana

Olivia Payne, Client Service Administrator

Olivia joined Morton Capital in April 2019. She brings with her 7 years of customer service experience in retail and social services. Olivia is originally from Georgia, where she attended the University of Georgia and obtained her degree in human development and family science. She is passionate about helping people make choices to improve their lives and learning as much as she can along the way. Olivia enjoys traveling and experiencing the different ways in which other cultures choose to enjoy life.

Elana Yaffe, Paraplanner

Elana Yaffe joined Morton Capital in February 2019 as a Paraplanner, where she collaborates with the advisory team to analyze and prepare financial plans. Prior to Morton Capital, she worked at Merrill Lynch as a seasonal client associate and at American Financial Network as a Paraplanner. Elana graduated with a degree in retailing and consumer sciences from the University of Arizona. She loves to travel, watch sports, and play with animals, especially with her shihtzu, Brandy, and boxer, Sunshine.

Meet the MC Team

Say Hello to Audriana Rex!

Kevin Rex, one of our Lead Wealth Advisors, and his wife, Nicole, welcomed their third child, Audriana, on April 12, a beautiful and healthy baby girl. A big congratulations to their growing family!

Best Places to Work for Financial Advisors Award

We are proud to announce we were named one of the Best Places to Work for Financial Advisors by InvestmentNews. This list highlights the top 75 firms nationwide in the financial advice industry. We were chosen 2nd among firms our size and 16th overall for our commitment to creating a firm culture that encourages idea-sharing and empowers employees to get the most life out of their career. Thank you to our amazing team for making Morton Capital a great place to work every day.

Read the full article by Investment News here

Be Careful Out There: Cybersecurity Tips

By Eric Selter, Chief Compliance Officer

As Elmer Fudd would say: “You should be vewy, vewy afwaid.”

Cybersecurity is a huge topic today. And it should be. The fraudsters are smart and persistent. If they put half as much time into doing good things as they do thinking up ways to steal your information, the world would be a much better place.

Recently, the Morton Capital team sat in on a cybersecurity seminar. Here are some important takeaways that we wanted to share:

* Your data is out there. Don’t think it’s not! Fraudsters can easily buy your personal data on the dark web. Have you ever used Yelp? Believe it or not, there are Yelp ratings for fraudsters on the dark web—that’s how prevalent it has become. Features like two-factor authentication, DocuSign, secure email links and other advanced security tools are useful in helping to prevent some of the more basic security breaches.

* It’s not just you they’re after. While individuals continue to be targets, the fraudsters are now coming after businesses too in order to mine the data they collect from their clients. Have you heard the financial expression, “Cash is king?” Now, data is KING!

* Prevention is key! Some debate the value of credit protection and monitoring services, but any potential alert that someone has opened an account in your name could help you nip fraud in the bud. One example of how to protect yourself: go to your mobile carrier’s website and change your settings so that any call forwarding must be done from your phone and not via their website, which can be hacked.A typical scheme that cybersecurity firms often see, which illustrates the depth of the potential fraud, goes like this: Fraudsters hack your email and see you’re in the process of buying a house (who doesn’t have dozens of emails back and forth with their realtor or escrow officer?). Since they can tell you’ve already warned us that you’ll need some cash for the closing, they send us an email that provides wire instructions to a fake account. Without verbal verification on both sides (you verbally verifying the escrow wire instructions with a trusted escrow officer; us verbally confirming the information with you), money can easily be lost forever.

To safeguard our clients against this common type of fraud, Morton Capital will continue to verbally verify and confirm all new money transfer requests. We know this extra step may be a hassle, but it’s for all of our protection. It’s better to spend some time up front preventing transfer fraud than trying to recover funds after they’ve transferred out. At the risk of dating myself, I’ll end with the line that Captain Esterhaus from Hill Street Blues would say at the start of every shift: LET’S BE CAREFUL OUT THERE!

 

GET THE MOST LIFE OUT OF YOUR WEALTH (SM)