Monthly Archives: October 2019

Karl Eggerss was on the Trey Ware show discussing that despite many indicators suggesting more economic slowdown, the stock market is at an all-time high.  He gives his main reason why.

Trey Ware:                         So as we look at your money for the week, stocks are threatening record highs today, busiest week for third quarter season. Earning season gets underway. S&P is within a half point of matching its entry day record high on Friday and it was just about three points from a record close. The Dow, again, ended about 440 from its own record peak as well. A lot of talk about the EU postponing leaving and the whole Brexit thing. You also have Microsoft, it looks like they’re going to open high today, maybe. A 10 billion dollar Cloud computing contract from the Pentagon. Amazon lower after losing that. Some questions, of course, about PG&E out in California and how that’s going to affect some of their stuff. And then, of course, we have the al-Baghdadi thing from yesterday and will that be reflected in the stock market? Karl Eggerss with is joining me. What about that, Karl? Do we see something like an al-Baghdadi killing, will that be reflected in the stock market today, you think?

Karl Eggerss:                      No, probably not. I think, personally, obviously, we all want a safer world and it’s awesome news for all of us. I don’t think it hurts the stock market, but generally speaking the big focus this week is going to be on the Federal Reserve. There’s a 90 plus percent chance they’re going to cut interest rates once again and they probably should given the fact that the bond market is telling you they need to do that. And we won’t go into the details of that, but basically Wall Street’s begging for another rate cut and really the concern, Trey, is that the stock market is doing extremely well. We’ve been talking about how the consumer is really keeping this economy going because of the spending and everything else that everybody is doing.

Karl Eggerss:                      The issue we need to watch is we’re watching how many hours people are working, which has started to fall. And if that continues to fall, guess what? If people are working less hours, they may have less money, they may spend less. So that’s something to watch over the next few weeks and couple of months. But I do want to reiterate something, everyone keeps asking me, “Are we going into recession? Are we going into recession?”, and the answer is the odds are still there. The odds are still that we don’t, but the odds are still there that we may have something in the next year and a slowdown. And the slowdown is continuing right now, but here’s the deal, we have to really distinguish between a recession and what the stock market does. Those are two different animals and you’re seeing it right now because the earnings coming out, the profit is what you’re buying. I always say that to you, that really we’re buying profits of companies and those are continuing to go up. The earnings beats, you mentioned a lot of them this week, are much higher than they were last quarter.

Karl Eggerss:                      So that’s really the key to this thing going up and continuing to break out to new, all-time highs, which all-time is a long time. And we got the stock markets continue to push forward despite the fact that people are still concerned about the economy flowing and the Fed probably going to lower rates.

Trey Ware:                         Well one other thing, I need to branch in here, and I only have a few seconds left, Karl. These California wildfires with PG&E, with them shutting down the power to so many hundreds of thousands, and I’m talking about hundreds of… well actually over the weekend it was close a million people without power over the weekend in California, that includes businesses. That’s going to be reflected in the economy as well. An economy like California is like a small country and when you are taking that much of the economy off-line for that amount of time like they’ve been doing out in California due to these wildfires, it’s going to be reflected in the broader economy. Karl, I got to go. We’ll talk about that some more another time. Karl Eggerss, again, from Trey Ware here, Ware and Rima next, KTSA.

In this week’s edition of CIO Justin Pawl’s blog:

  • Name Change – Time to rebrand the blog.
  • Last Week Today – A summary of news impacting the financial markets and the economy.
  • Financial Markets – An update on last week’s action.
  • You’re Going to do What??? – Presidential candidate Elizabeth Warren has a plan for U.S. oil independence.
  • Blame Game – The Fed ignores its own advice.
  • IC Meeting Highlights – Yellow lights on our recession indicators are burning brighter.


When I began writing this blog more than six years ago, it was intended to provide a summary of key financial market and economic data points that shaped markets the previous week, and that had the potential to influence markets in the coming weeks. I thought of it as a scalable version of a Monday morning kickoff meeting intended to inform and educate my colleagues.  Later we expanded the distribution to include clients and friends of Covenant. Now in its seventh year, we’ve decided to update the name based on positive feedback from clients about the brevity of the blog posts. Hence, we are renaming the blog, the “The Covenant 5-Minute Huddle.” The name reflects that the blog is designed to be read in five minutes or so, and, like a team huddle, it’s a short time together to plan for the play ahead. To keep to the 5-minute reading time, we will be publishing the Behavioral Finance posts in a separate series.

We will continue to deliver the Covenant 5-Minute Huddle with the CovenantU email each Monday. For those not familiar, in addition to this blog, CovenantU includes current videos and podcasts, giving you the flexibility to conveniently access information in the format you like when you like. If you know anyone that would benefit from the CovenantU content, which is designed to increase financial and economic literacy, please ask them to contact us, and we will add them to the distribution list. They can also add themselves to the distribution by texting “COVENANTU” to 22828. Thank you for your questions and your support.

Ready. Set. Go! Five minutes starts now. – Jp.


Last Week Today. The Brexit nightmare continued into extra innings with some procedural events taking place, lots of arguments/debates, and another extension. | Mario Draghi presided over his last meeting as President of the European Central Bank, stepping aside to make room for Christine Lagarde. Recently Managing Director of the International Monetary Fund, it’s expected that Ms. Lagarde will focus less on monetary policy and more on convincing Germany that fiscal stimulus is necessary to cure the slow growth ills of the Eurozone. | Sweden’s central bank (Riksbank) will end its 10-year experiment with negative rates, as it announced plans to raise rates in December to 0% despite slower growth and a weaker labor market. Riksbank was the first central bank to implement a negative rate policy on July 2, 2009. | U.S./China negotiators indicated progress in Phase 1 of the trade deal, which is looking like it may be ready for Presidents Xi and Trump to sign next month at the Asia-Pacific Economic Cooperation meeting in Chile. The deal won’t be perfect, and long-term issues remain, but at least both sides have agreed to measures tempering trade tensions.

Financial Markets. Global equities rallied for the third consecutive week, as the MSCI All Country World Index rose +1.3%, and is now up +2.2% in October. The S&P 500 gained +1.2% and is only a fraction of a percent from new highs, while the Dow and Nasdaq Composite indexes’ gains pushed them to within striking distance of their respective highs as well. Don’t look now, but Developed International stocks have modestly outperformed domestic equities over this timeframe, giving some credence to those who have been pounding the table that the bad news in Europe is already priced into markets. If that’s the case, things don’t necessarily need to get better overseas; they just need to stop getting worse for equities to rise further. Treasury bond prices fell (yields rose) modestly, while commodities gained on the week including precious metals (Gold +1.0%, Silver +2.8%), Copper (+1.5%), and WTI Crude, which rose +5.4% to $56.66 per barrel. For a summary of weekly, month-to-date, and year-to-date financial market performance, please click here. This week the Federal Reserve meets and is expected to deliver another rate cut.

You’re Going To Do What??? This is not a political statement, as I don’t play politics in this blog. Just reporting the news…. Elizabeth Warren, if elected, last week reiterated her pledge to ban fracking in the U.S. on her first day in office. Analysts suggest a ban would eliminate entire oil services companies and hundreds of thousands of (high paying) jobs. Furthermore, U.S. oil production would backslide from 12 million barrels per day (mbpd) to the pre-fracking era of 5 mbpd. The U.S. would once again be reliant on imports, and analysts forecast oil would likely trade at $85 per barrel with spikes to $150 during periods of short supply.

Blame Game. I’m going out on a limb to state that if the economy succumbs to a recession in 2020, look to the usual suspect for culpability, the Federal Reserve. The limb I’m on is skinny because the Big Brains at the Fed have far more intellectual firepower than I. However, the Big Brains have a weakness, and that weakness is their reliance on financial models that have not worked for decades. Through the continued yield-curve inversion, the market has been shouting that interest rates are too high. Chairman Powell himself has argued that more aggressive monetary policy action is necessary to avoid returning to zero interest rates. Yet, the Fed has not followed its own advice. What makes their lack of action more damning is that the usual Fed boogeyman, inflation, is nowhere to be seen. The Fed could have cut rates faster earlier this year, or instead of moving in 25bps increments, they could have cut by 50bps at one of their meetings, which, for a change, would have caught markets off guard (in a good way).

Ironically, aggressive monetary policy action earlier this year may have resulted in fewer cuts than are necessary now to unkink the yield curve. In the chart below, the yellow line is the yield curve as of April 30th, and the green line is the yield curve as of last Friday, October 25th. The points on the far left represent yields of bonds maturing within six months. As the chart shows, in April, when the Fed Funds rate was 2.25%, one rate cut would have cured the yield curve inversion. That is, the yields on the front-end of the curve (bonds maturing in 1-6 months) would have been pushed below that of bonds maturing in two years and longer. Instead, the Fed waited and the yield curve became more inverted.  Now, after two rate cuts so far this year, though overall interest rates are lower, the Fed must cuts rates further to un-invert the curve.


Source: Bloomberg, L.P.

Keep in mind that with the neutral interest rate level estimated at 0.75% to 1% (the level at which interest rates are neither stimulative nor restrictive), and the current Fed Funds rate at 1.75%, the Fed’s rate cuts are not increasingly accommodative, they are merely less restrictive.

IC Meeting Highlights. Last week Covenant’s Investment Committee held its quarterly confab, and it was a doozy. In our 2019 Mid-Year Economic Review and Outlook, we concluded with “In sum, overall levels of activity support continued “Good but not great” growth of around 2%, but there are worrisome trends implying downside risks to this forecast have increased.”

Our assessment of Q3 data, unfortunately, confirmed that those worrisome trends highlighted in the Mid-Year Outlook remain intact.  Leading indicators are deteriorating, and our outlook for the economy has been downgraded.  The lightning rod of our concerns is planted firmly at the feet of the all-mighty consumer. Consumption includes Services purchases, Nondurable goods purchases, and Durable goods purchases, and collectively these “Big 3” comprise approximately 70% of U.S. GDP. As highlighted in the blue-shaded portion of the chart below, a healthy consumer is essential for the economy to expand.  In the second quarter, when the economy expanded at a real (inflation-adjusted) annualized rate of 2.0%, the Big 3 contributed growth totaling about 3.5% (with other sectors detracting -1.5%). In Q3, all of the Big 3 areas of consumption are slowing, and collectively tracking to expand at a real, annualized rate of only 1.8%.


Source: Foleynomics


Why have consumers pulled in their spending horns? There are several possible explanations, most centering on uncertainty, such as uncertainty about the political situation (upcoming Presidential election and impeachment) and uncertainty about trade with China. Another possible explanation, and the one that concerns us the most, is that while the labor market is tight, the total amount of income earned by consumers is trending downward. But aren’t people getting raises? Yes, wages are rising; however, in the aggregate, total hours worked is falling. This scenario can occur because of layoffs, or the more likely cause is that managers are cutting back on workers’ hours to reduce costs while retaining talent in a tight labor market. See the chart below, which highlights the divergence between the average number of jobs added over the last six months (150,000), and the equivalent amount of jobs added based on hours worked (71,000).


Source: Foleynomics and Covenant Investment Research

Bottom Line: The consumer has been the primary source of growth in the economy as manufacturing is in contraction, government stimulus is waning, business investment has been low, and housing is in the doldrums. A recession is not “baked in the cake,” but our forecasting indicators are flashing an increasingly bright shade of yellow, and we need to hold these levels to avoid recession in 2020.

Be well,


On this week’s show, Karl reveals some fresh economic data which shows the economy is at a critical point.  But, is it priced in the market?

Hey, good morning everybody. Welcome to the podcast. This is Creating Richer Lives. My name is Karl Eggerss and we always welcome you aboard, even if you are brand new to the podcast, a friend told you about it, you came to and said, “What is this? I think I’ll hit the play button,” and here you are.

Many of you, of course, have been listening for a long, long time and we appreciate it. As always, we continue to improve the podcast and taken your suggestions and comments and questions, and it’s developed over the years. I’ve been doing podcasting for well over 10 years now, and podcasting has really taken off. It’s a great medium, not only because you can listen to it when you want, pause it to go get a snack, but you can also read it as we transcribe it every week. So, if you go to, what we do is we post on there several things during the week.

One of them is this podcast in audio and written format. In addition, we also have our CIO’s weekly blog that comes out on Monday mornings, as well. And then, I typically will do a TV interview or radio interview just talking about things that are important to all of us. Sometimes they’re mostly financial, but also things that can help you in other areas of your life as well, which is the whole theme of this show called Creating Richer Lives.

So, that’s what we do. If you ever need our help in the financial planning realm, in the investment management realm, the tax realm, any of those types of things, 210-526-0057 or as I mentioned, just go to, and you can reach out there as well. And by the way, if you ever have a friend that you think would benefit from our weekly distribution Covenant-U, and that comes out every Monday afternoon. It’s Covenant-U and it’s our previous week’s information.

Again, everything included in there. All you have to do is tell somebody to text Covenant-U to 22828. That’s pretty simple. They get out their phone, they type in Covenant-U as the message, and they text it to the number of 22828 and they will automatically be put into our distribution center, which sends out, again, our summation of everything we’ve done in the previous week, on Monday afternoons.

All right. Now that we have that housekeeping out of the way, we have a few things. An important past week, not necessarily in the markets because we didn’t really have a tremendous amount of movement in the markets. It was more a function of our quarterly investment committee meeting internally.

We get all of our thoughts together, a lot of opinions expressed, a lot of data going back and forth, and really to get our thinking for the next quarter, to look for any moves that we are deciding to make in terms of allocation, and we also get an economic update from our resident in-house economist Sean Foley. And Sean gave us some … a lot of information this time and some good, some bad, and so we’re going to go through a little bit of that in just a minute.

But first, I did want to put our thoughts and prayers out there for the folks in Dallas. I know my uncle’s house was literally destroyed in that tornado and it was a pretty violent tornado coming through there, and this is a good time for those of you that were not affected to think, “What things can I do right now to prepare for something like that, if it ever were to happen?”

Obviously, things like clothes can be replaced, everything can be replaced except for some of your data, some of your important documents, some of your pictures, so this is a good time. Take those pictures, scan them in, go use a Google Photos, go use a Dropbox, whatever you need to do to store them online. It’s great because those things cannot be replaced. And obviously, there’s some family heirlooms. You can’t scan family heirlooms, but whatever you can digitize, do it.

Especially these important documents, whether they’re wills or anything of that nature, but any other important documents to you, scan them and make sure as well your computer that’s sitting there, is it being backed up? I’ve been using personally something called Carbonite for years. They don’t advertise on here. We did advertise years ago, but they are not an advertiser.

But Carbonite is a great solution that runs in the background and it backs up everything on your computer. And there are different levels, they used to not back up big video files. You could manually back those up, you could click on them and tell it to do that, but now they have that option, as well. So videos, pictures, all of that gets backed up in the cloud. You can access it from anywhere.

So if your computer gets destroyed, you simply go on Carbonite, you download it. That’s just one solution at one I personally use, which is why I’m telling you about it, there are others. That’s peace of mind. Again, whatever you can digitize, just go through your house this weekend and think, “If that were to happen to me and if I was to come home and my house was literally gone, what could I do now to help mitigate some of those losses?”

And maybe it’s keeping some things in a fireproof box or off-site, any of those things. So I just wanted to mention that, because it’s really important, especially if you were not affected, to prepare. We can always prepare for that. I heard a story this week and before we get into our update on what we’re thinking about the markets and the economy and so forth, gentleman called me and, in a summation, his parents were left a trust by a great-aunt and unfortunately, I’m looking at this, they’d been getting income on it for years, but what was a very large estate has dwindled, dwindled, dwindled down.

Not only did the dad not get the right amount that was probably coming to him, but in addition, the investments in that trust were extremely aggressive, and was losing money in 2013 and ’14. And 2013 was a good year for the stock market, so it caught my attention. Why would that be going down? And in my mind I was thinking, “What went down in 2014?” Energy. The portfolio was littered with all energy stocks primarily, and that trust has dwindled down and now it’s at a point where the distributions that are going out each year to this gentleman’s father, they’re probably not sustainable because it will cannibalize the trust.

He even mentioned that the “financial advisor,” and I’ll use that in air quotes because this is not a financial advisor doing a fiduciary job, was also the trustee on the trust, in addition, was at the funeral with the attorney. They both had documents for the family to sign at the funeral. Warning sign, right? Red flag. So we’re trying to untangle this mess and figure out what happened, and the bottom line is these folks are not vengeful. They are saying, “How do we fix this going forward and live our lives comfortably going forward?” So this is where we step back.

We look at everything from the 30,000 foot view and say, “What are you trying to accomplish from this day forward?” The couple is 72 years old, “What are you looking to accomplish with this money that’s left? What else is coming in? What other expenses do you have? Build a portfolio that’s sustainable, that can pay you a reasonable income for the rest of your life and accomplish your goals. If you want to go back and fight, you can, but can we just move forward?” And that’s what we’re in the middle of doing.

There’s potential elder abuse. Some of this, you know, may or may not be able to be proven, but aggressive behavior nevertheless, and it’s a sad story, but this is how we want to turn what was a bad experience into a good one and show them how a good financial advisor experience, what that looks like. So be careful if you have any older family members, talk to them. What are they signing? Have they had any visitors lately? Are they putting too much trust in somebody? Look at the documents, those types of things. So be careful about that. Now moving on to the economy, the markets, et cetera.

We’re in an interesting position because, if I could put an underline under what the economic data is suggesting based on all this information that we received this week, some of it our input, some of it other people’s input, the economy is still slowing, and we’ve mentioned that the … we knew that, which is why the Fed’s changed their tune from last year and they’d been lowering interest rates this year and likely to do it again. We know that.

Is it going to stop though? Does it continue to slow down and grind to a halt, if not, go backwards, or is it just coming in and then reaccelerating? There are some folks that think we will see reacceleration later this year, but we’re already later in this year, right? We’re almost in November. But what I’ve been telling you and what we’ve been collectively saying inside Covenant is that the consumer, who is 70% of our GDP, has been keeping this economy really afloat because if you look at manufacturing, it looks pretty dismal.

Manufacturing looks like its own … it’s been in its own little recession, but the consumer has been doing pretty well in terms of, their wages have been accelerating, going up, they’ve been spending. Here’s the issue though, one of the issues, is that while their wages are going up, the hours that they are working are going down, and they’re down to 2016 levels. Now, if we remember back to 2016, some would say, and I wouldn’t disagree, we were in a mini recession in late 2015, early 2016 due to … falling energy prices was a big contributor.

Remember, oil went from 100 and … What was is? 20, $25 a barrel, down to $26 a barrel. And so we’re now down to those hours worked at that level today. So yes, the people working are getting raises, but if 10 people hypothetically were thrown out of work and one person got a raise, the stats would show people are getting raises, but yet we know there’s less people working.

So there’s a lot of jobs out there, a lot of jobs taken, everybody’s … a lot of people working. But the hours worked are one issue we need to watch, and that is down to 2016 levels, so we kind of need to hold here and so there’s a lot of these indicators we looked at over the past week that suggest that we’re at a critical fork in the road, where either things start to turn back up again, or we could tip into a recession in 2020.

Sean was clear, we’re clear, I’ve been clear on this podcast. Again, even if we go into recession in 2020, do you run for the hills with your stocks? Not necessarily because again, this recession, if it comes, we don’t know how long and deep it is, versus what was there in 2008. 2008 was a very unusual financial crisis, global recession as the worst we’ve seen. This is not suggesting that. This is maybe suggesting a mild recession, which maybe …

Do you know the stock market is not much higher now than it was a year and a half ago, almost two years ago? Has the stock market already been pricing in slow growth and slower growth? It may have been. So the stock market is a different animal than the economy. Think of that first. Even if we go into recession, because I always get the question, “Are we going into recession? Are we going into recession?” And I’ve been saying it doesn’t look like it right now, but we are very vulnerable to one. The Fed still looks like, based on what the bond market is telling us, the Fed is still behind the curve. The market is still asking and begging for more rate cuts.

Will they come? Should they do a half a percent? Probably so, but they’re likely to do a quarter of a percent. So the markets maybe have been pricing all of that in. And again, a recession is technically two quarters of negative GDP growth. Again, if it’s minus 0.001% for two quarters in a row, that is technically a recession. So it’s something we’re watching because here’s the thing, what’s going to happen if less people …

If people are working less hours and then we start to see maybe some layoffs, consumer spending starts to go down and that’s something we need to watch because again, while spending’s been improving, it’s still … All of this is still vulnerable. Again, it’s one thing if you’re growing at six or 7%, you’ve got some room to play with, but when you’re growing at 2%, you don’t have a lot of room for error. And that’s kind of where we are right now. If we were to sum up everything, is that we don’t have a lot of room for error in terms of the vulnerability of this economy.

We still have a lot of debt out there, albeit a lot of student loan debt, but debt is still a major issue and you guys know that, and the recession odds have increased. And when you look at some of the scenarios we’re looking at today, that doesn’t … hasn’t always led to a recession, but the odds have been high. Shifting from that, what do we do about that? Well, I can’t answer what you should do about that because I don’t know you, I can’t see you.

But I can tell you in general, as you go into something like this, you continue to look for quality. You don’t pay too much for things. So to me, what that looks like is you’re seeing stocks, for example, software stocks, which have been really the darling of Wall Street and for good reason, it’s a great business model, software stocks. But you’re seeing a lot of those stocks get hit and it’s not a surprise because some of them have been so expensive.

So you’re seeing stuff like that get hit, so I would say avoid the expensive areas. And you could always say this, but sometimes expensive gets rewarded. So I don’t always own the cheapest things in the world, but this is a time to probably do that. And there are good bargains out there. There’s things that are income-producing, but be careful in this market because of the fact that we’ve had low interest rates and they’re starting to go back down again based on what the Fed’s doing.

Remember, people have been using areas like utility stocks as a bond surrogate. They’re saying, “You know what, I can get a good quality dividend from that area without risking my money in bonds.” But what they’re doing is they’re actually having more risk and they’re overpaying. So you’re seeing some sectors and some industries that are very expensive based on their historical measures. So this is a time to really, again, look in the portfolio, your portfolio, what’s too expensive, what’s cheap? A little rotation.

If you’re owning bonds … Look, if the economy continues to slow, then high-quality, long-dated bonds still make sense. Treasury bonds still make sense if the economy continues to slow because, more than likely, interest rates continue to fall. And guess what happens? Bonds continue to go up, and many believed that we will see the 10-year Treasury rate, which is the 1.7, 1.8 range, fall below 1% by the time this cycle is done. If that happens, bonds continue to make a lot of money.

We’re shifting now, let’s think real quickly. If we know all of this, if we know the economy is slowing, we know that it’s vulnerable, then a lot of other people know that as well. And how much of that’s priced in the market? So we have to take that in consideration and we have to take sentiment into consideration. What’s sentiment? It’s how people feel about lots of things, the economy, the stock market, the bond market. So are these crowded trades?

In other words, have people bought bonds in anticipation of all of this and it’s priced in? Could we get the Fed lowering rates? And yet, the bond market sells off. That could happen. So all of this needs to be taken in moderation, right? You can have a piece of chocolate cake, probably shouldn’t have one for breakfast, lunch, and dinner every day. Although, I could probably do it. I could pull that off, I’m telling you, but you probably shouldn’t do that. And that’s how it is right now.

Keep a diversified portfolio, keep the income coming in because as we move sideways, as we’ve been doing for a year and a half, almost two years, that’s where the income comes into play, whether you’re living off of it or just using it as a total return vehicle, income is really important. Whether it’s through lending, commercial real estate, residential real estate, high-quality bonds, treasuries, international bonds. There’s lots of ways to get income and that’s a really important factor in a market that’s been choppy and sideways since we’ve had tariffs.

Now, we are seeing positive developments out of trade. It’s taking a long time. Again, we’re going on two years now, but we have positive developments. We’ve got earnings coming in, which are going to be mediocre in terms of growth and we have some bright spots. When you think about housing, we’re seeing housing accelerating, which is a really good thing. So there are a lot of bright spots here and that’s why this does not look like if we go into a recession, this financial crisis.

And that’s something that many need to understand because again, if you haven’t been following markets but maybe 10 years or 12 years, you think every downturn looks like ’08, and that’s not the case. Many of us have been around the markets way before the ’08 financial crisis and we’ve studied markets going back to the Great Depression, the 30s, the 40s, the 50s, and there have been garden variety recessions, and there’ve been stock markets that have done very well at various times of the business cycle, as well.

So studying that is important when you’re coming up with an allocation. And remember, we still have stocks that are advancing versus declining, making all-time highs right now, so we can talk about the economy all we want. I like to study personally, Karl Eggerss likes to study, I like to look at the economy and make moves based on that. But I also like to look at the sentiment and what investors are doing, what are they doing? Because the market is a forward-looking indicator, and by the advanced decline line making new all time highs, we see a broadening out of the stock market.

Very important. Now do we see the characteristics that indicate a bull market becoming a bear market? The answer’s no. That’s why I’m not uber-bearish right now, but do we, again, have a little bit of protection on our side? Do we do things a little on the defensive side? Yes. Again, in moderation, we do these things and then we look for it for what I would call the low-hanging fruit. Things that are cheap in our opinion, and you go after those things and you buy them with conviction, but you also don’t flirt with things that are vulnerable if we do get more of a slow-down.

But it was a really interesting meeting because again, there’s a lot of stuff going on right now, and when you put it all in a blender, things are still slowing down. It’s how slow are they going to get? And nobody knows that. Nobody knows, because remember, these Federal Reserve interest rate cuts take time to trickle through. They don’t happen immediately, so that last hike in 2018 really did do some damage to the economy. Sounds silly, but it did, for many reasons.

And then, when they reverse course in a quick fashion, which they did, they didn’t quite do it fast enough, and so they’d been 25 basis points, 25 basis points and the market saying, “No, no, we want more.” How do I know that? Again, if you look at something called the yield curve, which is you take short-term interest rates, longer-term interest rates, and the longest interest rates, and you plot little points, and you connect the dots, what you will see is that everything else on the curve is already priced in, because remember, the markets controlling the longer interest rates by just buying and selling bonds, those are have already factored that in, it’s the short-term rates, which look high.

And that’s the part that probably needs to come down more, which is the Federal Reserve. So we think they will cut rates again and they probably should cut rates more. We don’t know that far out yet. But it’s interesting that the market is still holding up here, given some of this information. And that may tell you something, right? So that’s why we’re not uber-bullish or bearish, excuse me, because there’s a lot of positive things going on as well.

But this 3000 level on the S&P 500 has been kind of a … hitting your head on the ceiling, right? We’ve been bumping up against that. We need to kind of break through to the other side. They should write a song called … nevermind. So that’s where we sit right now, that is where we sit. Again, improving the quality of a portfolio, making sure your portfolio matches what you’re trying to accomplish for the longer term. Okay?

And also, being realistic about what do you expect for the markets going forward? What do you expect from the bond market going forward? What do you expect from emerging markets going forward? Domestic stocks, because once you kind of have some expectations on that, then you can build a portfolio that’s trying to match what you, specifically you, are trying to accomplish and that’s what we do every day at Covenant.

If you do need help 210-526-0057, and our website We’re getting a ton of good feedback on the new improved website, in addition to Covenant-U, which is a culmination of all of that distributed to your inbox on Monday afternoons, which is fantastic. If you don’t want to keep checking the website, you can simply go and get the information through Covenant-U on the email distribution on Mondays.

We also post this stuff on social media. We’re on Twitter, we’re on Facebook, all of that, so we enjoy putting it out there for you, we enjoy the feedback. If there’s topics you want us to cover, we’ve got a whole slew of things coming up in the next several weeks we’re excited about, and if you do want some different type of information or getting … if you have some feedback, send it our way. We always appreciate that.

And don’t forget also, in terms of the podcast, you can listen to the podcast on Spotify, on Apple Podcasts, on Overcast, all these podcasting services to where it’ll pop up for you immediately when we post it, and we post it, to let you know, on Saturday mornings. So if you want to listen to the podcast right when it comes out on Saturday mornings with your hot cup of coffee, which you’ll probably need this weekend, you can do that on Saturday mornings. If you want to wait for the email to come to you, comes on Monday afternoons.

All right folks, have a wonderful rest of your weekend. Take care.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy or product, including the investments and/or investment strategies recommended or undertaken by Covenant Multifamily Offices, LLC, Covenant, or any non-investment related content will be profitable, equal any corresponding indicated historical performance levels be suitable for your portfolio or individual situation or proved successful.

Moreover, you should not assume that any discussion or information serves as the receipt of or as a substitute for personalized investment advice from Covenant, to the extent that a listener has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with a professional advisor of his/her choosing.

Covenant is neither a law firm, nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of our current written disclosure brochure discussing our advisory services and fees is available upon request or at


On the Trey Ware Show, Karl & Trey discussed the economy and a key report that could indicate China is ready to sign a trade deal.

Trey Ware:                         Karl Eggerss is joining us from and we’re talking about money for your week. How’s it going Karl?

Karl Eggerss:                      Hey Trey, how are you doing?

Trey Ware:                         Doing well, man. What’s the big money news this week?

Karl Eggerss:                      Well, it was interesting. Last week, we saw China reported their slowest growth since the 1990s and so they appear to want to do a deal more than we do. And so that’s really what’s driving all of this. And so we saw some positive comments yesterday out of China that trade talks are going well. And of course, we had that kind of deal, structural deal made a week ago, but it wasn’t signed and we didn’t know when it was going to be done. So some people said, “Well, maybe the Chinese are kind of pulling back a little bit. Maybe they want to talk a little more.” But again, trade progress is happening and with China’s slower growth, it looks like that’s going to happen sooner rather than later. So that’s a positive thing going on. And then this week is a really, really busy week for all the companies that report their profits. That’s going to come out and that will really tell us a lot about how the economy’s really doing because the CEOs are going to report those profits.

Trey Ware:                         Here’s one for you. Latino-owned businesses are growing at a record pace during the Trump economy, a 46% jump in revenue this year with Latino-owned businesses. Also revenues and Latino owned companies have jumped 23% just in the past few months. They are flourishing in the Trump economy right now, particularly Latino-owned businesses. Now I don’t know why. It doesn’t, the study doesn’t say that. The study’s just talking about the facts and the figures, but that’s good news.

Karl Eggerss:                      It’s awesome news. We follow the housing market really closely to San Antonio, all over the place. South side, east side, west side, north side. It’s extremely strong right now. And a lot of folks that are buying houses on the South side have their own small businesses and they’re doing very well. And again, we need to continue to watch that because as long as consumers are doing well, as we’ve been saying, the economy is going to keep rolling because they’re spending money. And we’re seeing good signs of that. So that’s something a positive, especially, like I said, in San Antonio.

Trey Ware:                         Yeah, that’s right. Thank you, Karl. Appreciate that.


Karl Eggerss was on CBS to discuss helpful tips on improving your retirement.

Speaker 1:                          We’re keeping you Money Smart on Sunday Mornings. After years of hard work, who wouldn’t look forward to just kicking back and relaxing as a retiree? Well, here’s Sharon Ko with a financial advisor on the top mistakes that can ruin that long-awaited retirement.

Karl Eggerss:                      We’re living longer as humans, which is great with technology and everything else, but that means your dollars have to go much further in. One of the main things and it’s pretty obvious, but spending too much money. Now what does that mean, and what’s the context of that? Back in the early nineties, there was a financial advisor that came out with what’s called the 4% withdrawal rule, and essentially you should kind of limit how much you’re pulling off of your savings by a certain percentage. He came up with a 4%, and it’s supposed to take into consideration inflation and everything else. But if you kind of stick with that, it should sustain itself over time, assuming you have a diversified portfolio.

Sharon Ko:                         Another way is not saving enough?

Karl Eggerss:                      Yeah. And this is something that even as a young child or somebody that’s just starting out in the workforce if you can save 10 or 15% of your income, I mean that really goes a long way.

Karl Eggerss:                      And nowadays with 401k matching and so forth, it is fairly easy to get to that number. You may not start that way, but if you can work your way up to saving as much as you can and then you will feel free to spend after that what’s leftover. At least you know you have it budgeted, and you have an automatic savings program happening.

Sharon Ko:                         What about inflation?

Karl Eggerss:                      Inflation is big, and that’s probably the thing that most people don’t consider. If you think about what a truck might’ve cost, a top of the line truck back in the 1960s, which was only a few thousand dollars versus nowadays it may be 60, 70 thousand dollars. That’s inflation, and it happens very slowly. So, if you can retire today at 65, your costs over time are going to go up even if you don’t change your lifestyle. Planning for that and having investments that beat inflation is really the key. Sitting around just in a savings account or a checking account is probably you’re going to lose purchasing power over time. So, people not ignoring inflation is a really big one.

Sharon Ko:                         What are some ways people can diversify their portfolio?

Karl Eggerss:                      Well, a lot of folks learned a bad lesson in the 2007 through 2009 financial crisis, which was they owned a lot of different types of stocks or a lot of different types of mutual funds, and they all went down. Most of them, I should say. So really diversifying means having a rainy day fund, owning some stocks, owning some bonds, owning some real estate, maybe owning some precious metals. Really diversifying in that form or fashion will at least alleviate a lot of the bumps along the way. You’re always going to have some bumps, but it’s when folks have too much of a concentrated position, whether it’s their company stock, that’s a common one we see, or their favorite stock or their favorite mutual fund, that’s where people get into trouble. It can be too much of any one thing can cause disruption in retirement for your overall portfolio.

Karl Eggerss:                      I would say to put all this and put a bow around it, it would be to have a comprehensive financial plan. If you don’t have a plan, it’s hard to know where you’re going. You have to have that roadmap and sticking to it. A lot of folks have a plan, but they don’t stick to it. They get a little fearful of this, or they spend too much money, or they’re not saving enough. If you have a well-established plan and you stick to it, your odds of success of having a successful retirement are astronomically higher.



On this week’s show, Karl discusses key economic indicators that were released this week and their impact on the stock market.  Plus, what things should you consider when dealing with the death of a spouse or a parent?

Hey, good morning everybody. Welcome to the podcast. This is Creating Richer Lives. I’m your host, Karl Eggerss. We thank you very much for joining us. Just a reminder, the show is brought to you by Covenant Lifestyle Legacy Philanthropy. If you need to get hold of us, 210-526-0057, and I would encourage you to visit We’ve done a lot of work on, and you’ll notice we have not only articles, we have video, we have audio, and there are tons of topics that will help you, a friend, a neighbor, a parent, a child out, and that is our goal on this podcast is to educate you.

All right, well, let’s jump right in. What happened this week? We did start the week with kind of a weird … it’s one of these hybrid holidays, I’ll call it, Columbus Day, where the bond market is closed and the stock market is open, and it was kind of a flat day. China said they wanted to talk some more. Remember, we saw previous week, we’ve got a trade deal, right? But it was it really a deal? It wasn’t signed, but there was some optimism around that. Had the market’s going up. And then China said, “We’d like to talk a little more before we sign this deal,” so you saw the market kind of flat. But we did see the lowest volume for the stock market in a full session. Remember we have half days occasionally for various holidays. This was the lowest volume for a full day session since December of 2017, so you’re talking about going back almost two years. Very, very light volume. It’s as if everybody’s on the sidelines waiting for something to happen either good or bad.

Tuesday, a pretty good day for the markets from start to finish, and we did see the yield curve. Remember, the yield curve’s been inverted. So we saw the three month treasury rates versus the 10 year treasury rates became unconverted, and that’s a positive sign. So we did see that, and then this is something that didn’t get a lot of attention, but the New York Stock Exchange saw a new all time high for its advanced decline line. Again, this tells you that there is broadening strength within market underneath the surface. So even though the major averages are kind of still bouncing around, we’re still near the highs but you’re not seeing them go straight up, we are seeing an all time high for the advanced decline line. Very, very positive.

Now, the last couple of days here, Wednesday, Thursday, Friday, you did see some more chatter about these overnight repo rates. Remember, we’ve talked about this where there was a shortage of liquidity and so the fed’s having to step in. Well, we saw another $75 billion overnight on Wednesday, so that garnered some attention. Retail sales missed, and this is something we need to watch carefully. Now, the previous months was revised up, but the retail sales report for last month was weaker than expected. And remember, this is really important because as we’ve been saying, the consumer is keeping us in this game from keeping us out of a recession because we’ve been running at a slow growth rate and the consumer, which is almost 70% of our economy has been spending money. You guys have been spending money, but we saw weak retail sales reports, so something to watch. Is it a onetime deal or is it something that is going to snowball? Because we also got on Thursday a bad housing number as well, so let’s watch that.

Now, there is one little stat I wanted to mention that also happened on Wednesday, that the S&P 500 has a dividend yield. This just means a few by the stock market, if you bought the whole S&P 500 in an index, whether it’s a mutual fund or an exchange-traded fund, it has a dividend yield. Let’s call it 1.5%, 1.7%, 2%. It’s some percentage. That yield is actually higher now then a 10 year treasury yield, and a lot of people believe that is one reason why stocks will continue to go higher is that people don’t want to put their money in bonds because they can get paid more by going and buying the S&P 500 from an income standpoint. The other 40 times this has happened from 1970 until now, the S&P 500 was up 95% of the time, so that is a very important stat.

Now again, one stat but interesting to see that again, that does tell you that people do like when the dividend yield is higher on the stock market because they’re going to go buy stock. So 95% of the time a year later, the S&P has been higher from 1970 to present 40 different times. I believe that either came from Jason Goepfert or Bespoke. I cannot recall. But that was a pretty flat day in the market Wednesday. Thursday had a little positive bias to it and kind of the bigger news was probably, did you notice the little mini, for you technicians, the little mini breakout in emerging market stocks? They’ve been making lower highs really for most of this year. We have dollar strength, weakening stock market and emerging markets, they technically broke out a little bit, so let’s watch that over the next few weeks. Are we going to start seeing foreign stocks outpace American stocks?

And then Friday, probably the biggest thing that I saw on Friday was the fact that the leading index of economic indicators … This is a really important one for me because if you look, these generally roll over well in advance of a recession, and this indicator also tends to roll over in advance of a stock market peaking as well, and we got a worse than expected reading and the prior month’s was also revised down as well. So let’s see if that’s a trend. Is it flattening out and rolling over or is it simply flattening out and pausing before it accelerates again? Remember there’s a lot of people who believe in the next few weeks here we’re going to start to see the economy re-accelerate, and that is something to watch. Remember, we have some vulnerabilities here, especially watching the consumer. Very important to watch.

And so we ended the week … I don’t know if that was what caused the stock market to kind of sell off, but we did have a selloff on Friday of 255 points on the Dow Jones, almost 1%. The S&P wasn’t as bad, only 0.2%. The NASDAQ also down about .65%. What was interesting, though, is value stocks were up on the day, so we’ve mentioned this in the past that we saw a big difference between what the Standard and Poors 500 and the Dow Jones was doing versus some specific indices There was tons of green stocks on Friday. Very interesting to watch. Regional banks were higher. Some foreign stocks were higher. Just banks in general were higher. We had home construction stocks were higher. Financials were higher, and I’m talking considerably higher, 30, 40, 50, 60, 70 and 80 basis points, metals and mining, utilities. So there’s a lot of things that were up on Friday despite the 255 point drop in the Dow Jones. So that was the kind of though the wrap up for the week.

Now, unfortunately, I’ve been around some death lately. Some friends’ parents have passed away and just seen some sickness and it got me thinking about, what are some things that you should consider if one of your parents were to pass away, some things to think about? You have a lot of things coming at you, right? And it’s unfortunate that as I was attending a service this week, I thought, “This is sad that a family has to deal with some of this grief and at the same time put on almost what’s the equivalent of a wedding reception,” right? You have to plan for all these things, and it costs money and you have to organize all these things and obituaries and death certificates and just all the things you have to deal with with the passing of a loved one, and it’s unfortunate because that’s not the time you should be dealing with that. You should be celebrating their life, obviously being sad, being with family as opposed to having to think about the logistics of putting a service together.

It got me thinking what things should one consider, and I just wanted to run through a few things that I think should be top of the list, which is if there was, in terms of benefits and cashflow items, is there something that, for example, social security, surviving spousal benefits? You’re talking about things like an IRA. Did the spouse have an IRA? Remember, if the deceased spouse had an IRA, the surviving spouse can transfer that existing IRA into their IRA. Does not have to be a stretch IRA or an inherited IRA. That would be if the kids were the survivors. So that is something to consider because again, that spouse can take that IRA, no taxes, put it in their own IRA. These are, it goes without saying, things that will be thought about over the next several weeks, not next several hours, but just some things to think about.

Was there a pension involved? Very important. Also, just start thinking about retitling of accounts, updating beneficiaries. If the surviving spouse did inherit an IRA, they need to make sure that the beneficiaries are updated properly on their new IRA or their existing IRA. Usually two parents will have each other as the primary beneficiary and maybe the kids as contingent. That may be changing. There’s one surviving spouse and now the remaining kids will now be the primary beneficiary in a lot of situations. Was there a beneficiary on the deceased spouse? Was there a beneficiary that was a child or an uncle or some other family member that needs to be notified? That’s something to have to consider.

How about the estate? How large was the estate? This won’t impact most people, but was the parents’ estate in excess of $11.4 million? Now, most of you are saying, “Yeah, I wish,” but some of you are saying, “Yeah, I have an issue.” Again, the planning should take place in advance of this, but that is something to consider as well, the size of the estate.

Was there life insurance involved? If there was, again, finding out what were those insurance companies, what are policy numbers and getting those proceeds to the proper place on that. If there was an estate tax liability, we talked about the 11.4 million, and that includes life insurance. If there was a liability, it does need to be paid. There’s a form that can be filed to change the valuation date.

How about a safety deposit box? Those are becoming probably less common, but was there a safety deposit box? What’s inside of there? Who’s on the account? Sometimes people don’t put somebody else on that account and it’s hard to get into that safe deposit box. I’ve heard of that situation popping up before, so make sure there’s a second person on there while obviously the person’s alive. Doing a lot of this planning, you understand the more you can plan in advance, the less you have to do afterwards.

How about digital assets? That’s something we’ve talked about over the years. Nowadays, our pictures are stored online, right? And those are called digital assets. Are those supposed to be kept going? Does someone else have access to that account, whether it’s Facebook or Google Photos or Dropbox? Any of those things, any of that stuff that is again digitized, does somebody have access to that and where do those things go and are they to be preserved or not?

How about if the person that passed away was employed? Notifying the employer, figuring out what benefits there might be. There’s insurance to take into consideration. Of course, was the death caused by an accident or was it caused by work-related? That could be where the employer situation comes in, as well.

There may be a house to sell, and that is something again, that if it was a primary residence, you have the $500,000 capital gains exclusion, but that is something … that’s a tough one because there’s a lot of memories there and the surviving spouse needs to decide and you helping them decide how long they want to stay in the house. Do they want to stay in there forever or do they want to make a plan to move? Those are things to consider, as well.

If the couple filed taxes jointly together, they can still file jointly. So if somebody passes away in 2019, the surviving spouse can still file a joint return for 2019, but that would change obviously in 2020.

The other thing to consider is identity theft. Remember, obituaries are published. There are bad people out there, so it’s a good idea to cancel email accounts or at least get those forwarded. We’ve talked about digital asset, social media accounts. Notify the credit bureaus, driver’s license, all those types of things, so there’s a big checklist of things to do. And one thing that we offer our clients is a tool. It’s a piece of software that we give them access to that does a lot of these checklists internally in one place, and each spouse has a separate login, and the idea is you put all this information in there, where you have an extra car, where the car keys are held, who the insurance agent is and what the policy number is as well, what medications were being taken. Wills and any legal documents can be stored in this vault, and so what it does is it gives a big peace of mind to the surviving spouse to have the to do list, which is extremely helpful.

We encourage our clients to take the time to fill that out, and it does take some work, but it is extremely helpful. You even put pictures of your insurance cards in there, and if you are a couple that is getting up there in age, you can put a child on as a deputy so the child can have access to that, so again, if something happens to both of the parents, whether they’re incapacitated or they have passed away, the child can step in and see exactly what some of their … and again, this is non-legal. The legal documents are stored in there, but the non-legal stuff, that’s just practical things, what was my social media accounts and the passwords and what was the pet medication that my pets were taking. Anything you want to put in there to make it easier for surviving spouse or a child, you can do that.

And so this can be done obviously in a spreadsheet or Word document. What we use is something that just makes it much simpler because it walks you down item by item in terms of wishes, in terms of insurance, both life, medical insurance, and it’s just a great organizational tool. That’s something that you need to be thinking about that now even if you’re in perfect health, because I’ve seen situations lately where things change on a dime, and this isn’t just something about working with your parents. This is something you listening should do as well.

The more you can plan now, the easier it makes it on everybody else down the road. Usually one spouse is kind of in the dark regarding how bills are paid or what certain assets they may have and where they are, who the advisors are. All those things can be put in one place and it just makes it easy. And make sure you communicate. If you’re somebody listening that’s saying, “I need to do this,” communicate with your spouse about where these things are. The more you can communicate upfront, again, the easier you’re making it on the surviving spouse and the children, again, at a time where you don’t really want to be thinking about a lot of this stuff. You want this to be kind of dominoes. It’s already set in place.

And it goes without saying, on the legal side, when’s the last time you did review your estate? Yes, many people don’t have estate tax issues anymore. That may not be the case in the next 5, 10, 15 years, right? The laws can change as we know. What if we went back to a $600,000 lifetime exemption? It would affect a lot of people. So doing the planning now in getting those docs down and review them periodically to make sure everything is set … Once a year, check your beneficiaries on your brokerage accounts. Is it still the people you want to be on there? And again, check those legal docs.

There’s all types of things in terms of medical powers of attorney, living wills, the traditional wills, could be trusts involved and again, your situation does change over time, and so it’s always good to review that. Those are not the things that are very fun, right? But they are the things that are necessary to make sure that your wishes will be carried out and it’ll be as convenient as possible. I don’t think anybody that has deceased wants a complicated mess for either their surviving spouse or their children or whoever else is in line.

All right, well, that’s going to wrap it up for today. I hope that was helpful for you. Again, if you need information from us or need help doing any of that stuff, 210-526-0057‘s our telephone number. We have tons of people skilled in this area, or just go to, and there’s a place on there if you want to get in contact with us, quick little form, and we will do that. But as always, we will continue to put more information on in an effort to help you. Don’t be afraid to share the podcasts, especially on topics like this where you think people might need this information. All right, folks, have a wonderful weekend. Enjoy the weather. Take care, everybody.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk and there can be no assurance that the future performance of any specific investment, investment strategy or product, including the investments and or investment strategies recommended or undertaken by Covenant Multifamily Offices, LLC, Covenant, or any non-investment-related content, will be profitable, equal any corresponding indicated historical performance levels, be suitable for your portfolio or individual situation or prove successful.  Moreover, you should not assume that any discussion or information serves as the receipt of or as a substitute for personalized investment advice from Covenant. To the extent that a listener has any questions regarding the applicability of any specific issue discussed above to his or her individual situation, he/she is encouraged to consult with a professional advisor of his or her choosing. Covenant is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice. A copy of our current written disclosure brochure discussing our advisory services and fees is available upon request or at

It’s The Consumer, Stupid

October 14, 2019

In 1992, James Carville coined the phrase “It’s The Economy, Stupid”.  It helped Bill Clinton secure the presidency.  It was meant to be an internal message, but quickly spread and was impactful during a time when the economy was in a recession.

In 2019, the consumer is keeping the economy going, especially given that they are approximately 70% of the economy.  On today’s Trey Ware Show, Karl discussed the positive elements going on with the American consumer and the impact on the economy and the stock market.

Trey Ware:                         Time to talk with Karl Eggerss, joining me now here on KTSA. Couple of news things that happened over the weekend and we’ll get into the Chinese deal here in a minute. According to new Census Bureau data from America’s middle class. Research, they have found gigantic income gains for the middle-class under Donald Trump. The median or average family income has seen a gain of $5,000 since Trump came into office up from 61,000 to 65,976. Under George W. Bush, the middle class gained $400 in eight years. And under Barack Obama it was $1,000. Home Depot and Lowe’s showing huge record sales surges and the tax cut added an average $2,500 to a typical family of four’s after-tax income. So you got that.

And then on Friday, you got a big pop because the President and China announced an agreement. They haven’t signed the agreement yet, but they announced an agreement in principle. China is going to raise its agricultural purchases of soy beans and stuff like that up to about 40 to 50 billion. That’s up from 8 billion. That’s actually huge. And the President says they’re going to buy more land and more tractors. Phase two negotiations expected to begin immediately after the first agreement is signed and Wall Street loved that news. Good morning, Karl.

Karl Eggerss:                      Hey Trey, how are you doing?

Trey Ware:                         Doing very well, man. What do you think about all that?

Karl Eggerss:                      Well, it was what we were looking for, which is at the very least a de-escalation, right? We didn’t want this to ramp up to more tariffs more back and forth. We had a real big ping pong match last week. We heard a lot of new things coming out saying, “Hey, they want this, they’re mad at this. Trump wanted this.” And then at the end of the day, we did get that agreement, in principle at least. So what we need now is obviously there’s probably a few more talks going on. In fact, you saw that come out this morning that China still wants us to talk a little bit more, work out some more details, but I think the de-escalation is what the stock market was looking for. It’s what we were looking for, that we don’t want this to get any worse. Let’s deal with each other and make this a deal. So that was very encouraging.

The other thing I wanted to mention is something you said earlier about what’s going on with people and their raises and their net worth and everything else. That’s really important because not only do we have the stock market near an all time high, we also have people starting to get raises for the first time in a long time. And so you’re seeing that each and every month when this jobs report comes out, there’s a wage number in there that says how much are people, how much are their wages going up. And they’re starting to go up a little bit. And that is a really encouraging sign because as I’ve been telling you for months, if the consumer’s in good shape, then probably your 401k is going to be in good shape and the economy’s in good shape because people are still spending. And when do they spend? When they get raises. And that is happening right now, which is very, very encouraging.

Trey Ware:                         Well and too, if they get this deal done with China, which they are working on getting done and they’re going from buying $8 billion in agricultural products up to $40 and $50 billion of agricultural products, plus they just got the deal done with Japan last week or two weeks ago and we’re still waiting for Nancy Pelosi to get off her butt and do something about the new NAFTA, NAFTA II or whatever they’re going to call this thing. Get that done and approved. And people are going to start to see some real money flowing into their bank accounts all across all income sectors here in the United States. Got to buy more tractors, got to buy more land year. There’s going to be free and open trade all through the Americas. I think all this is really, really good news at a time when the President needs some good news rolling into next year’s reelection campaign.

Karl Eggerss:                      Well look, money flows like water. And so right now we have these agreements that are in principle, we need to get them done because we want to see economies flowing in Mexico, coming back to United States. We’re talking trains, we’re talking rails, everything else. And when you have that flowing freely and with China, then you see the economy really take off. Right now the uncertainty is really the main thing that has caused the stock market to be a little bumpy in the last 18 months, has been what do we do if we’re a manufacturer, if we’re a CEO, if we’re an employee, am I going to have a job? What do we do? And this will solve a lot of that. And this will answer a lot of questions. And when that happens, I do think the economy will re-accelerate. Absolutely.

Trey Ware:                         Yeah, no doubt about it. Karl Eggerss,             Thank you, Karl.


  • Last Week Today – A summary of news impacting the financial markets and the economy.
  • Financial Markets – An update of the week’s action.
  • De-escalation – Tensions b/w the U.S. and China leveled-off … for now.
  • Eco Data – The good and bad in recent economic data.
  • People Are Funny – Cleverly named stock tickers outperform.

Last Week Today. The World Bank updated its forecasts and announced that 2019 global GDP may not meet their already lowered 2.6% forecast. | The Fed minutes from the September meeting were dovish, reinforcing the likelihood of another interest rate cut at their next meeting on October 29th/30th. | An Iranian tanker was hit by missiles in Red Sea waters off the coast of Saudi Arabia, causing oil prices to briefly rise and heightening the conflict between Iran and Saudi Arabia. | The Federal Reserve announced it will purchase $60 billion a month in short-term Treasury bills through at least the end of Q2 2020 to ensure smooth operations in the overnight repo market (i.e., intrabank lending) that experienced a liquidity squeeze last month.

Financial Markets. Equities broke a three-week losing streak, as positive trade news pulled markets higher at the end of the week. But the more important story was the rise in bond yields, as the yield curve became less inverted. The closely watched yield differential between bonds maturing in 10 years and 3-months finally unkinked when the benchmark’s 10-year note yield rose to 1.75% above the 1.68% yield on the 3-month bill. This doesn’t mean we’re out of the woods with regards to a future recession. However, the economy functions better when the credit markets are working normally, and when the curve is not inverted, banks are more incentivized to lend. Equity flows continue to be negative as investors pull money to invest in bond funds, which have already racked up impressive gains (the iShares 20+ Year Treasury Bond ETF – TLT – is up more than 15% YTD). According to BofA Merrill Lynch data, investors have pulled $217 billion from equity funds and plowed $379 million into bond funds in 2019 – this is often seen as a contrarian indicator that is positive for stocks. The third-quarter earnings season gets underway next week, which will help determine the direction of stock prices. Like the last two quarters, earnings in the aggregate are expected to decline. However, in each of the previous two quarters earnings actually rose modestly, which is saying something given tough comparisons to last year when fiscal stimulus and tax cuts boosted corporate profits. For a summary of weekly, month-to-date, and year-to-date financial market performance, please click here.

De-escalation. While it’s been well-covered, it would be disingenuous not to include U.S. / China trade negotiations in this synopsis of financial market and economic events since their impact on the markets was so visible. My colleague and I likened it to a tennis match where your head is on a swivel looking this way then that as the players drive the ball back-and-forth. China opened the week with an aggressive serve, narrowing the scope of topics Chinese officials would be willing to negotiate during discussions later in the week. Equities declined on Monday. The U.S. returned China’s serve and went crosscourt, blacklisting eight Chinese technology companies, accusing them of involvement in human rights violations of Muslim minorities and resurfacing the idea of restricting U.S. investments into China. Equities fell further on Tuesday. China then lobbed the ball back over the net, saying they would be open to a small trade deal if President Trump backed off on tariffs. Equities rose on Wednesday. It looked as if the match was over on Wednesday evening as equity futures plunged when it was reported that Chinese negotiators were leaving Washington a day early without a deal. Then, within a couple of hours, the ball came back across the net (and futures recovered) as that report was said to be false, and a deal was still possible. As news of a deal began to leak on Thursday, equities rose, and when the deal was announced on Friday, they rose further. Apparently, U.S. and Chinese negotiators met at the net, shook hands, and walked away from the match exhausted, each claiming victory. The reality is that little was accomplished in resolving the trade dispute. However, the fact that negotiations did not collapse resulted in a de-escalation of tensions, at least for now. The market welcomed the news, but this is far from over, and risk assets hang clearly hang in the balance. I’m not a political strategist, but if I were President Trump and I was planning to make a deal with China, I would wait until closer to the 2020 election. Voters have short memories, and the favorable political currency from striking a more significant deal with China before mid-year would likely have little benefit at the polls next November.

Eco Data. There’s good news and bad news in recent economic data. Let’s end on a good note, and start with the bad news, which is not exactly bad and better categorized as “concerning and worth keeping an eye on.”

Labor Market: While the unemployment rate remains extremely low, a troubling trend in job openings has emerged, which may slow the pace of hiring in the future. Since last November, job openings have declined by 7.5%, which is highly unusual in an economic expansion. During the slowdown of 2015/2016, they declined by 0.8%, but the last time job openings fell by 7.5% was between March 2007 and December 2007 just before the Great Recession. The decline in openings could partially be explained away as there have been more jobs available than workers to fill them, but on the recession dashboard, this indicator is flashing yellow. A strong labor market is critical to a healthy economy, especially in the U.S., where consumers comprise 70% of GDP.


Sources: FTN Financial and the Bureau of Labor Statistics.

Business Investment: Capital investment by businesses is flat year-over-year, even as low interest rates make financing equipment purchases historically cheap. However, a sluggish global economy and uncertainty around trade make planning for the future a challenge, and in response, managers are keeping their hands in their pockets.


Sources: FTN Financial and the Census Bureau.

Residential Housing: Housing is finally showing early signs of a rebound, as lower interest rates are improving affordability. New home sales rose 28% following a 2.5-year decline that ended last October. Existing home sales remain slightly below their 2017 peak, but have risen 11.4% since January. Before this quarter, residential investment had recorded six consecutive quarters of negative growth, but that disappointing streak may be coming to an end. A stronger housing market is good for the economy because it has knock-on effects in related services and goods sectors.


Sources: FTN Financial and the Census Bureau.


Sources: FTN Financial and the National Association of Realtors.

People are Funny (if not predictable). Through our series on Behavioral Finance (which we will continue in the coming weeks), we’ve looked at how the hardwiring of the human brain makes people susceptible to errors in judgment. Below is just a fun example of how familiarity breeds comfort, and comfort promotes risk-taking. When a company offers stock to the public through an initial public offering (“IPO”), management chooses a ticker to identify the company on the stock exchange. As the chart below highlights, companies who select clever or recognizable words as their tickers have outperformed the stock market by a wide margin over the last 10 years. Some of the outperformance is undoubtedly related to better corporate earnings, but don’t underestimate the power of easy to remember tickers when investors select stocks to purchase. Indeed, while the broader market has doubled over this timeframe, “clever” ticker name stocks have soared in value by nearly 5x.


Be well,


On CBS, Karl discussed with Sharon Ko how much it really costs to raise a child.  The number may shock you.  Karl gives some practical tips on how to pay for those important expenses.


Sharon Ko:                         This morning, let’s talk budgeting for a baby. There’s the joy of parenthood, but having a child can quickly turn into a financial nightmare. Here’s some tips to get you money-smart for a kid.

Karl, as I was reading this article, I almost dropped my phone. I couldn’t believe $233,000 on average for a middle-income family to raise one child, birth-

Karl Eggerss:                      So you don’t want to have six kids, is that what you’re saying?

Sharon Ko:                         I’m going to stick to my Chihuahua.

Karl Eggerss:                      Okay.

Sharon Ko:                         From birth to 18.

Karl Eggerss:                      Right.

Sharon Ko:                         So can you break down the cost for us? How does that number even get that high?

Karl Eggerss:                      Yeah, it’s an astronomical number. We probably have a smaller population than most people who heard that stat.

I think if you think about having to have a bigger house, a lot of folks that end up having a baby, that’s where they kind of moved from an apartment to a house. So that’s a cost. More food, especially teenagers. I have two teenagers, a lot more food. Clothing, extracurricular activities. And we’re not even talking about college. Most state universities are at least $100,000 for a four-year degree. And those are things that I think parents need to start thinking about before they’re parents.

If you really are intent on having a family, don’t wait until the child’s born before you start saving. You can start saving for that child well in advance of even having a baby, and there’s a lot of creative ways to do that.

I also think having a comprehensive plan, and there’s a lot of apps and software out there nowadays, more than ever, to help you with a budget. And oftentimes, after people look at a month’s worth of expenses or three months, you start to see and go, “I didn’t realize we were eating out that much. I don’t necessarily need that latte every single morning.” And you can begin prioritizing. You can maybe skip… Well, some people can’t skip their coffee, but you may skip the expensive coffee so that you may be able to take a trip with your family. And really, it’s about controlling where those dollars are going. There’s only so much coming in. It’s about saving and about budgeting.

Sharon Ko:                         What about couples who already have children? Are there any tax credits?

Karl Eggerss:                      There are. The tax credits gotten much more favorable a couple of years ago when we had the new tax plan that rolled out. And so people used to be fairly limited on income to get child tax credits, the income’s much higher now, which means more people have the child tax credit available to them that maybe didn’t think they did previously. So make sure if you do your own taxes that you do check that because you may be leaving some money on the table if you don’t claim those credits. And remember, the difference between a tax deduction and a tax credit is pretty big. A tax credit is dollar for dollar. So if you get a $2,000 tax credit, that’s literally $2,000 you get back at the end of the year. A deduction depends on what tax bracket you’re in. If you get a $2,000 deduction, they are only dollars you’re really getting back or what income tax bracket you’re in based on that 2,000. So if you’re in a 10% bracket, you’re going to get $200 back. So a credit is much more valuable than a deduction.

Sharon Ko:                         Do you think thinking about life insurance is too early? I mean, is it or is it never too early to think about that?

Karl Eggerss:                      I don’t think it’s ever too early. I think you have to assess the situation. If you have a one income household, obviously if that primary income, something were to happen to that person, that’s why they need to have insurance on that person because that income is gone. It magnifies when you have kids. The younger you are, the more healthy you are, the more insurance and the cheaper it’s going to be. So absolutely plan for that. And insurance has gotten a lot cheaper over the years and you can go online to do it. A lot of folks have too much insurance because they’re sold insurance. Be very careful about where and how you get your insurance because it’s pretty easy to figure out what you need and it’s pretty easy to get nowadays as well. It’s a very competitive world, which is great for our viewers.

Sharon Ko:                         Thanks so much Karl Eggerss for those great tips.

Trade War Truce

October 12, 2019

On this week’s show, Karl discusses the back and forth of stocks this week all based on trade.  But, by the time the dust settled, a deal had been reached, and stocks rose.

Also, Casey Keller, CFA joins Karl to discuss the best savings account ever created.


Karl Eggerss:                      Hey, good morning everybody. Welcome to Creating Richer Lives, the podcast version. Thanks for joining us. Appreciate it. My name is Karl Eggerss and if you want to get a hold of us (210) 526-0057 and the website is We make it nice and easy for you. The name of the website,, the name of the podcast, Creating Richer Lives, pretty easy. And by the way, this show is brought to you by Covenant Lifestyle Legacy Philanthropy. We are also on all the social media outlets and don’t forget too that the podcast is carried in multiple places.

You can just go to our website and listened to it. We have the transcripts are up there as well. So if you like to read the podcast, which some of you do. Monday afternoons, you’re sitting at work, the boss has walked by and he’s on the other side of the office and you want to catch a glimpse of the podcast and you can’t really put the ear buds in or the cool air pods hanging out of your ears. You want to read it. We put that on there for you, so the podcast you can read just as much as you can listen to.

All right. Well coming up in a little bit, we’re going to have Casey Keller chartered financial analyst to tell us about the best savings account ever created. You’ll want to stay tuned for that. The best savings account ever created, that’s coming up in just a minute. But it was a crazy week on Wall Street and while the major averages point to point didn’t seem to move that much, the Dow Jones was up a little less than 1%, the S&P, a little more than half a percent. That wasn’t the real story. The real story was all the up and down due to trade talks and it was quite fascinating because we come in Monday and the Dow falls about a 100 points after some negative reports came out regarding trade.

Then, we saw that Tuesday China would signal that it was going to hit back at the Trump administration because they are going to place eight of the country’s technology giants on a black list over alleged human rights violations against Muslim minorities. So China didn’t like that. And then asked Tuesday whether China would retaliate, their foreign ministry said stay tuned was his quote. Stay tuned. So markets clearly didn’t like that. The Dow Jones fell 300 points, very volatile day, S&P down about a percent and a half.

Now Wednesday we, here we go again, we hear China says, hey, we’re open to a partial trade deal. And so the market jumps 180 points at the open. Pretty strong day. Pretty much a relief rally. Not much internal strength, but a pretty good rally nonetheless. But it was after the bell that we had all the fireworks. We heard that China negotiators were going to leave the US without any progress on a trade deal. And so the futures after hours, most of you probably didn’t even notice this. But if you watch this stuff practically 24/7 like I do, you see that the futures were down about 300 points.

And it was because the Chinese officials are going to leave the United States without a deal. And we were trying to picture this in the office and Justin Pawl, our CIO, said, I can only picture the US officials grabbing the legs of the Chinese officials as they board the plane, don’t go. And sure enough, about two hours later, we hear that tariffs could be removed because there’s some positive negotiations around currency. And by the time the market opens the next morning, it’s flat, and so the ping pong match continues back and forth.

And Thursday, stocks are up 150 because we start getting the sense that maybe trade, maybe there’s a deal coming. And lo and behold, Friday we get the deal. But is it a deal? Well, the Dow jumped 500 points, very solid day, but it stalled off at the end of the day and we still finished up about 300 points. But the caveat is it was called phase one. So it is a skinny deal. It’s a mini deal and it covers some of the basic things, which is essentially we won’t put more tariffs on you and you buy a bunch of soy beans and whatever else from us.

That’s kind of the deal. We don’t touch intellectual property, probably not in some of these more important things. So this is phase one and it was best described this week, not as a de-escalation, but rather just it was it … It froze that we didn’t have further escalation, so just didn’t get any worse. But did it really get better? Who knows? But it was a relief rally, nevertheless, and it was a kind of a comeback. But the whole week was dominated by trade. Now, over the next couple of weeks, it’s going to shift rather dramatically because we’re going to see next week 53 of the 500 S&P 500 companies are going to be reporting earnings.

And then it’s going to get even busier after that. On October 24, there’s going to be 51 companies report just that one day. And in the last week of October, you’re going to see 162 companies in the S&P 500 report their earnings per share. Now when you start looking at the checklist in terms of can the market break out to new highs, you have to look at trade. That’s a big one because as we’ve been saying for months, as soon as tariffs were introduced, pretty much the market has had a lot of trouble making new highs.

We saw the market make new highs in January of ’18 and at that point the Dow was sitting somewhere about, we’ll call it, 26,600. Where are we today? 26,800. So, we’re basically at the same level we were more than a year and a half ago and it’s tied directly to tariffs and trade. So we may have some positive news on that. So what’s next? Well, the next thing is we need the earnings to come in better than expected that’s the next catalyst in the next few weeks. If we can get good earnings, which again is really what you are buying when you’re buying a stock is profits.

We need those to be good. And then probably the last ingredient is just the overall economy and we are still seeing some positive news out there. We’ve got some negative things happen in as well. But again, if it doesn’t get any worse, you remember we heard about yield curve inversion. Remember the short term rates higher than the long-term rates and why that typically leads to a recession. It’s a warning sign. Some of that’s been corrected and some of it’s not, but is it going to get any worse? If it doesn’t get worse, you have the trade deal getting better.

You have earnings getting better. You keep getting some positive economic news. Then, yes, we can, I think, go up to new highs and in a pretty good fashion because remember we’re still seeing a lot of money flowing out of the stock market. I know it doesn’t really make sense and it is hard to wrap our brains around. What do you mean going out of the stock market when the stock market’s at the same level it was a year and a half ago? So aren’t there equal sellers and buyers? Yes, that is the case.

But if you track the fund flows, some of the fund flows rolling out of the stock market right now in the billions are worse now than during the financial crisis. So you’re still having a big pessimistic theme happening and that can be reversed pretty quickly with positive news as we saw on Friday with a trade deal and the Dow Jones at one point was up about 500 points and a lot of big, big winners, three, four, 5% up on a lot of stocks. That’s what happens when people are in a sour mood and some positive news takes them by surprise, you get short covering and you get buying and that’s what we saw this week, so that can continue.

But to me those are the three basic ingredients, economy, trade and earnings. And we kind of have one at least checked off partially for now. Now a couple of quick notes before we get to our interview. Did you see the Social Security news, Social Security, COLA, cost of living adjustment? This is how much they gave you extra on your Social Security check each year. And when I say extra meaning the increase, the inflation adjustment. Well, it looks like it’s going to be 1.6% in 2020 and that is down from the 2.8% received this year.

So therein lies the issue, guys, that for those of you on pensions, on fixed income, relying on Social Security, the raises you get, the increases typically do not keep up with inflation. Now if we look at the government inflation numbers, yes, they would say, look,

Karl Eggerss:                      This is what we’re basing it on. If social security’s inflation is only 1.6% the COLA, then that’s what we think the inflation rate is. But you and I know that your inflation rate is probably a little higher than 1.6%. Thus, you have to have a diversified portfolio that’s going to beat inflation, so over time your portfolio grows more than that and you will have enough to take out for your living expenses. That’s the general idea. We are seeing a drop in the COLA for 2020. That was one thing that caught my eye this week.

The other thing is that there’s a lot of charts circling around now saying, “Look, this is the time of year from a seasonality standpoint that we should see a positive move for equity markets.” We already went through the low period, the tough period for equities. If you look at a long-term picture of the market and you averaged out every day for the last 50, 100 years, you have a pattern. Because you take every January 1, every January 2, cetera. You put them together and you get this pattern. We’re entering the period right now where typically you see the stock market rally. So we have that on our side. Is it something we all rely on? No. Every year is different. Every situation is different, but it is something that could offer a tailwind because other people see it. Other people might use that.

The other thing I saw in this was a tweet I put out. I saw a commercial for the new Apple card. Have you seen the new credit card by Apple? Obviously you can use your phone, but they have a physical credit card now. It’s pretty cool. It’s got some nice features. One of the coolest things is you ever get your credit card statement and you look at it, and the description of one of the places you went doesn’t make any sense. You’re like, “I don’t understand what this is. It’s got a bunch of letters. It has a bunch of numbers.”

Well Apple, what they do is they use their map technology and where you swipe the credit card, put that together, and give you the actual name of the business where you purchased something. So it makes it easier. They got some reward points, et cetera, et cetera. But they say in the commercial they claimed “not created by a bank” but yet, do you know who backs that card? Goldman Sachs. Do you know Goldman Sachs is a bank? Interesting. I thought I’d share that with you. When you see that commercial come on next time, think of me. Think of because when it says “not created by a bank,” it kind of is. Goldman Sachs is backing it. Maybe they didn’t create it, but it’s still a credit card backed by a bank.

All right. As I mentioned earlier, we have Casey Keller, Charter Financial Analyst in studio with us. Casey, welcome to the podcast.

Casey Keller:                      Glad to be here, Karl.

Karl Eggerss:                      We teased it at the top of the hour as the best savings account ever created. Why? Or I should say not why are you calling it this, but what is the best savings account ever? Especially given that we’re still in a low interest rate environment, so this piques people’s curiosity. What is the best savings account ever created in your view?

Casey Keller:                      Yeah. Karl, it may surprise some people, but it’s called a Health Savings Account. It’s basically just an account to help you pay for medical expenses, either today’s medical expenses or future if you have a high deductible health insurance plan.

Karl Eggerss:                      The Health Savings Account, most people know them as HSAs. You may have heard that term not really understanding exactly how they work. We’re going to explain it a little bit, just real high level about the plan. But really what we wanted to talk about was the main benefits of the plan that most people don’t even think about. We’ve talked to CPAs. We’ve talked to financial planners. We’ve talked to all types of folks that don’t realize what this can really be used for. In terms of a Health Savings Account, we started out in the eighties and nineties HMOs, PPOs. Those were a traditional copay. You have a little lower premium and you go to the doctor and you pay a certain amount. Then you do have a deductible. It really worked for people that go to the doctor a lot or sick a lot.

Health Savings Accounts came out in 2003 as part of the Bush tax cuts I believe. They’ve been around for awhile and they’ve gained popularity, but these are high deductible plans. What we’re talking about with PPOs and HMOs were generally a little lower deductible. You could raise them. These are pretty much exclusively high deductible plan. Number one, who generally uses high deductible plans? What are the negatives of that first?

Casey Keller:                      Sure. Well, I’d say more and more people are probably using them because they’ve seen their health insurance costs rise and they started to explore other options. They’re starting to look and see what are other options to get my premiums down. If you’re looking in that direction, a Health Savings Account or a high deductible plan usually will pop up as an option. You start to look at it and compare. Nowadays, I believe the minimum requirement to qualify for an HSA is like $2,700 deductible for a family. So it may not be as high as one would think. That’s typically-

Karl Eggerss:                      So you pretty much pay for everything out of pocket up to $2,700 for a family?

Casey Keller:                      Correct. For a family. Yeah. I mean you are going to incur more costs upfront. You’re going to be paying for-

Karl Eggerss:                      If.

Casey Keller:                      If you have this plan.

Karl Eggerss:                      Yeah.

Casey Keller:                      So it varies in terms of how you look at it. I would say more and more people, if they looked at the details of high deductible plans, some of them may be less frightening or less costly than they may think.

Karl Eggerss:                      You really do have to go back and analyze your medical history, your family’s medical history, your kids, how often they are sick or not.

Casey Keller:                      Medications that they may need. A lot of that needs to be a part of the conversation. It’s not for everybody, but I think more and more people would qualify or benefit from it than they may think.

Karl Eggerss:                      So that’s the basic fork in the road. You’ve got low deductible traditional plans or high deductible where people are trying to save on their premiums, but it’s a higher deductible plan, so you’re on the hook when those things do occur. That’s what it is. Of course, you still go to your doctors and you still do those types of things.

Casey Keller:                      One other thing I’d add to it as well, Karl, is that I think it does make you a smarter consumer. If you have a high deductible health care plan, you’re going to start thinking a little bit more about how you handle healthcare because you are paying the first part of it out of pocket. It does help you ask more questions and be a little bit a smarter consumer. Not that everybody could fit, but it’s kind of like if you extrapolate that across the whole country, you could see how it can really benefit healthcare overall.

Karl Eggerss:                      Unfortunately most people probably don’t want to see behind the curtain of what some of these things really do cost when you start digging in, what am I being charged? I’m being charged 12 bucks for a Kleenex.

Casey Keller:                      Right. Then you start to realize I can go to this place versus this lab to get some blood work or lab work done and actually save money. There’s a lot of ways that you can become smarter about healthcare.

Karl Eggerss:                      Yeah. A $10 bandaid is not what it should be.

Casey Keller:                      Right.

Karl Eggerss:                      We know what that plan is. Employers offer it. You can get them on your own or employers were offering them. Sometimes they’ll match and have some incentive as well. But where does the savings account come into play? When you participate in one of these, you’re putting money into this pot, right?

Casey Keller:                      Correct.

Karl Eggerss:                      Then the idea is that it grows and you’re able to use it later or anytime for medical expenses.

Casey Keller:                      Right.

Karl Eggerss:                      Right? That’s the traditional sense. Does it grow tax deferred, tax free? Do you get a tax deduction? Explain some of that.

Casey Keller:                      Sure. Well, I think first of all, I think it gets confused a lot because there is another healthcare plan called a Flex Spending Account. Folks may be familiar with that. That’s a little different animal. That does require you to spend every dollar you put into it at the end of the year.

Karl Eggerss:                      Use it or lose it.

Casey Keller:                      Use it or lose it. Sometimes this account gets confused with that so people think they have to spend it all. That’s one misconception. With an HSA, you have to know if you have a difference between an HSA or a Flex Spending Account. But if you have an HSA, you’re not required to spend it. Basically, it allows you to have your money go in tax deferred or pre tax. If your employer’s putting dollars into the plan for you, it doesn’t count as income for you.

Karl Eggerss:                      Okay. Basically the employer puts in and you’re putting in, so you’re not paying. You’re getting a deduction yourself and whatever the company’s matching, you’re also not paying taxes on that right now either. You got both of those sources of money going into this bucket called an HSA and it’s growing.

Casey Keller:                      It’s kind of like a 401k or an IRA in that sense. But the beauty of it is that like with an IRA, if you’re putting money in, not a 401k, but an IRA, if you’re putting money into that each year, there are limits on your income. If you make over certain amounts, that income or those contributions will not be tax deductible after a certain level. HSA have no limits on that. So it doesn’t matter what your income is. If you’re putting into an HSA, you’re always going to get the tax deduction for it.

Karl Eggerss:                      The money goes in there and as opposed to a 401k or an IRA, this grows tax free, which is very different than tax deferred. Right? Because on a 401k, you took a deduction now. You’re going to have to pay the taxes on the gains later. With an HSA, that’s not the case. Right?

Casey Keller:                      As long as you take the money out for qualified medical expenses, that’s the key.

Karl Eggerss:                      Here’s where it gets interesting, right? Because you don’t necessarily have to take it out for qualified medical expenses, but you do have to take it out for medical expenses that were incurred at some point in your life.

Casey Keller:                      Correct. Yes. That’s the key part there. But to reiterate that, just like

Casey Keller:                      An IRA or 401k we said any savings in there, if it’s invested can grow tax deferred.

Karl Eggerss:                      So you can actually invest this money too. Flexible spending just sits in a silo, right?

Casey Keller:                      Exactly. So it can be saved and I’ll get into that just in a moment. Just a little more detail on that. But it can be saved and it is tax deferred, just like an IRA. But the kicker is, it can be pulled out or taken out tax free as long as it’s to offset either incurred expenses from previously medical expenses or current medical expenses. So here’s how it works Karl, here’s how the strategy would work, would be that you’d put money into the plan. The current limits are $7,000 per year if you have a family, for an individual it’s $3,500.

Karl Eggerss:                      Is that including the match by the way?

Casey Keller:                      That includes the match, so you can’t go over-

Karl Eggerss:                      Okay, so 7,000 total.

Casey Keller:                      Total, whether it’s employer or individual. So if the employer puts the full 7,000 in, you can’t put any extra. But let’s just say you’re max out. Let’s just say a family, you’re putting $7,000 in. The idea is that if you have the means and then you would just incur medical expenses throughout the year.

Karl Eggerss:                      Cashflow then basically.

Casey Keller:                      your cashflow, and you have a doctor’s visit, you have some medications, you’re paying for that out of pocket. And then you start to build up that balance that’s in each year, let’s say 7,014 it’s building up.

Karl Eggerss:                      So let’s just say after 10 years, they have $70,000 plus whatever it’s grown to.

Casey Keller:                      Exactly. Most of these a HSA accounts now offer the ability to invest the balance so you can choose to go pick mutual funds. Some even allow brokerage accounts where you can go in there and invest in whatever you want, and the idea would be to grow it. Meanwhile, in the meantime, you’re incurring medical expenses and you’re keeping track of those. So if you’re going to the doctor, a lot of these sites now, they’ll keep track and say, okay, I went to doctors, it was $80 and you put that in there, paid for this medication. You’re tracking all these expenses.

So you have this running tally of expenses and let’s just fast forward to retirement. Let’s just say someone started this in their forties, they started doing this, and now they’re 65. They could very well have hundreds of thousands of dollars in this plan, this HSA plan. And maybe they’ve incurred over that time $50,000 in expenses and they’ve kept track of that. So they’ve never touched it, but now they can reimburse themselves for $50,000 worth of expenses over the last 20 years, 25 years. And so they can go out and reimburse themselves if they want, take the family on vacation-

Karl Eggerss:                      And that’s tax free, right?

Casey Keller:                      That’s tax free because-

Karl Eggerss:                      Now here’s what most people probably are wondering, okay, you say somebody has, let’s just say $200,000, it’s built up over time, they’re in retirement. They’ve got receipts proving that they have 50,000 worth of expenses. So what about the other 150,000 that’s in the HSA? Is it trapped in there?

Casey Keller:                      No, I mean, potentially you pre-funded your retirement medical care or costs.

Karl Eggerss:                      So you could use it, if you did have another $5,000 medical expense at that time, you can take it out for that at the time. So as opposed to cashflow in it.

Casey Keller:                      At that point, you kind of switch gears and you say, I’m not saving anymore, now I’m in retirement, I’m going to use this account for my medical expenses. So every time you go to the doctor or anything comes up, you’re going to use that account at that point. And if you are fortunate enough to where you’ve overfunded it and you have it too much money in there, worst case scenario is it just becomes like an IRA. If you end up not having enough medical costs to use the account for, you can pull the money out and it’s just taxed like an IRA, just like a paycheck.

Karl Eggerss:                      And what happens if somebody, let’s say a husband and wife pass away, what happens to the remaining balance in the HSA? It basically goes to their heirs and it would be taxable to them. But it still grew all those years, tax deferred at that point, and they just pay the taxes on that at that point?

Casey Keller:                      Correct. Basically the worst case scenario is that you’ve created another IRA for yourself.

Karl Eggerss:                      Yeah, right.

Casey Keller:                      Best case scenario, you’ve gotten to use it for medical expenses tax-free and for all of your life. You basically have to pay for your medical care.

Karl Eggerss:                      Yeah, and I think that’s the misconception, is that people think, well, number one, whatever I put in there is going to be used for medical expenses and I don’t want to over-fund it and all those things. What you’re suggesting is if you have the means, you cashflow your medical just like you normally would, except you get the benefit of putting $7,000 on something that you’ve got a deduction on that’s growing tax free and withdrawn tax free. So what you’re saying is this is triple tax free. I don’t know of another vehicle that has those characteristics.

Casey Keller:                      No, in fact the real popular Roth IRA has two of those.

Karl Eggerss:                      Yeah, so the Roth IRA you put in after tax which means you were taxed on the dollars you put in already.

Casey Keller:                      Correct.

Karl Eggerss:                      So that’s the, that’s already out of it. Then it grows tax free and it can be taken out tax free. So it’s very beneficial.

Casey Keller:                      Which is great, it is.

Karl Eggerss:                      Yeah. Awesome. However, it’s two of the three. 401k, deduction upfront, didn’t pay taxes, but guess what? It’s tax deferred. So the growth is going to be taxed down the road. And actually all of it’s going to be taxed at some point. You got the deduction up front, you pay the taxes down the road.

Casey Keller:                      Right.

Karl Eggerss:                      This goes in with a deduction, grows tax free, and withdrawn with medical expenses to counteract that is tax free as well. Triple tax savings.

Casey Keller:                      Exactly, and that’s what’s unique about it.

Karl Eggerss:                      Pretty phenomenal. So really, I mean, you think about who wouldn’t do this? I think this is where to me comprehensive financial planning comes in, because if you just look at some of these things in isolation, like for example, well, I go to the doctor a little more. Okay, well did you take in consideration how much money you’re going to save in tax free growth that may be greater than the money you… Yes, maybe you did spend a little more on medical by going this route, but if you factor in the tax free growth down the road, maybe that supersedes the medical expenses. You see what I’m saying? In other words, you can’t just look at, well, I go to the doctor a lot so I can’t use an HSC.

Casey Keller:                      No, and I think a real important factor here is that you have to have some liquid savings to be able to cover unexpected medical needs if you-

Karl Eggerss:                      Or good income.

Casey Keller:                      Or good income, one or the other. You need to have something to be able to pay for these things that come up. If you have a broken bone, stitches, things like that, that can be more costly with the high deductible plan. But if you have the cash there, it’s better to pay cash out of your savings than to pull out of the HSA and lose the growth potential, tax free growth potential of that account.

Karl Eggerss:                      This is a really excellent technique because it’s taking something that’s available to most people, that are used in traditional sense, but they are not using it or understand what else it can do. It’s like driving around with a turbo and you didn’t know you had to flip the switch to kick in the nitrous or the turbos, you don’t know it’s under the hood. You have this ability in this plan and most people probably aren’t using it to its fullest extent.

Casey Keller:                      Right, and if you really kind of embrace the power of what it can do, you would almost treat it as this cherished asset that you want to protect and you don’t want to ever tap into it. I think that’s when you start to realize how it works, you go, this is powerful. This can really be really beneficial long term. And then you go, how can I pay for medical expenses in another way? Your thinking changes. It flips in a different manner going I want to protect this account.

Karl Eggerss:                      Well, here’s what’s interesting too, just to kind of put a bow on it, it’s the fact that people come to us all the time, they go, “Boy, I hate paying taxes, I hate this. I’ve already maxed out my 401k. I guess there’s nothing as an employee left to do.” It’s right here. This doesn’t impact your 401k. You can still put in 19,000 as of right now, 19,000 if you’re under 50. 25,000 if you’re over 50 per year into a 401k and you can do 7,000 into the HSA.

Casey Keller:                      Correct.

Karl Eggerss:                      Those are mutually exclusive.

Casey Keller:                      That’s correct.

Karl Eggerss:                      Wow. This is awesome. The best savings account ever created. Casey Keller, thanks for this information. Very, very valuable and we will have you back soon.

Casey Keller:                      My pleasure, Carl, thanks.

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