- Why Even Rich People Are Having Trouble Getting a Mortgage
- Housing stocks fall, Facebook jumps on Wall Street
- Stocks gain after unemployment claims fall
- Biltmore Capital Advisors’ Tyler Vernon is named a New Jersey Five Star Wealth Manager by New Jersey Monthly Magazine!
- First-Time Home Buyers Missing Out on Housing Recovery
Category Archives: Print
Home prices are rising, but even the well-off are facing obstacles from tight-fisted banks
By: Richard Satran
US News & World Report’s | August 1, 2013
Having trouble getting home financing? You’re not alone. Even wealthy people are getting rejected under the tough new lending rules adopted after 2008′s housing market crash.
Moneyed enclaves are still feeling the impact of tight mortgage money. In the breezy New Hampshire lakes region where “On Golden Pond” was filmed and waterfront homes routinely sell in the $5 million to $10 million range, sales are “brisk” but loan applications are often rejected, says sales associate Jerry Love of Peabody & Smith Realty in Holderness, N.H., on the shore of Squam Lake.
“We don’t see deals sail through with the automatic approvals that we used to see,” Love says. “And we are seeing plenty of wealthy people turned down on million-dollar loans who would easily have qualified a few years back.”
The rules may get even tougher under proposals now being considered in Washington designed to cap borrowing as a percentage of income. That will be especially bad news for first-time homebuyers and people with moderate incomes who have the hardest time lining up financing. But even those with millions in assets and high credit scores are being turned down if their income is low. And in a low-rate environment, their investment income counts for less than ever on bank loan applications.
“People with a lot of resources are usually OK getting first mortgages, but they are finding they can’t refinance or get funding for a second home,” says Tyler Vernon, a loan specialist for Biltmore Capital Advisors in Princeton, N.J. “Of course it’s a nice, high-level problem to have. But it’s a real problem for retirees in places like the Northeast.”
Also, while increasingly stringent income requirements are posing the most barriers, stingy assessments are also a frequent problem for costlier deals, according to real estate agents and lenders. In part, that’s because “assessors are protecting themselves because banks have been suing them over mortgage failures that showed inflated values,” Vernon says. Costly properties can pose difficulties when assessors try to find comparable sales for estimating what mansions are worth, Love adds.
“Everything has moved to a much more rigorous underwriting environment, and every datapoint in every application is verified, checked and documentation is gone over multiple times,” says Michael Fratantoni, vice president of single-family research and policy development at the Mortgage Bankers Association.
People with money are finding ways to buy properties, but in the first go-around, they are finding surprises. “The lenders want income statements. They want to check with employers directly on people’s work record, and they want to see people who have been in jobs for awhile,” Love says. “That’s not something our wealthy buyers can always show.”
To be sure, it’s first-time buyers and people with moderate incomes who are having the most trouble getting credit, Fratantoni says. But this is a dramatically different lending environment no matter what income strata you are in. The MBA’s index on mortgage credit availability has risen slightly over the past year, but it’s nothing like it was prior to the crash. The MBA’s credit availability index is just two years old. But it calculates that home financing would have been eight times as easy in the years leading up to the housing collapse.
Still, some lending has thawed a bit. The MBA says there has been some recent easing up on loan requirements, and wealthier borrowers have benefited the most: Even borrowers without high incomes are starting to qualify based on healthy savings and high credit scores alone. “They have a better chance, but not every lender is willing to do that,” Fratantoni says. “It might require some shopping around.”
But even as the housing market improves, loan originations overall are expected to drop by 10 percent this year versus last, according to the MBA. Banks remain reluctant to part with their own reserves, even though they are flush after five years of easy money from the Federal Reserve. Fratantoni says the change in credit availability reflects the banks’ more prudent lending and the elimination of “no-documention” and “interest-only” loans that led to many of the foreclosures in the real estate crash.
Also, bad loans of all shapes and sizes are still working their way through foreclosures and court proceedings. Just this week, prosecutors in New Jersey filed charges against one of television’s “Real Housewives of New Jersey,” Teresa Giudice, and her husband Giuseppe “Joe” Giudice, who were charged with falsifying income data on $2 million in home mortgages dating back to the early 2000s when standards were loose.
Financial regulators are also pushing for controls to avoid the excesses that led to the crash. The new Consumer Financial Protection Bureau has been pushing for a limit on borrowing when a debt-to-income ratio exceeds 43 percent, although Congressional opponents worry it will “reduce access to credit that qualified borrowers need to buy homes,” according to a press release issued by members of a House Financial Services subcommittee.
Lending experts say consumers need to be well-prepared to deal with the stringent process when they seek loans. Documentation is important, sometimes in the form of a letter from an employer. People seeking mortgages should also be prepared to shop for deals. Different lenders have much different standards. Down payments are rising for many loans, with 20 percent to 30 percent equity required from private lenders. For those who qualify for FHA loans, the down payment is 3.5 percent, but requirements for the federal lending program are stringent. Two years in a job and a credit score of 620 or better are needed, and costly mortgage insurance adds more than a percentage point to the lifetime cost of the loan. For wealthy buyers, FHA loans don’t help much since they are capped at $625,000.
The high-end lending market is slowly recovering, though, and private lenders are extending credit for the well-heeled while avoiding the starter-home set that can borrow through government programs. “It’s more work but things are getting done,” says Love, whose clients are mostly those with enough money to afford a second home. “We are very busy this summer, and we haven’t even gotten to the peak period [at summer's end when people often buy vacation homes.]“
Biltmore’s Vernon says his firm has been busy getting loans for wealthy clients who borrow against their investment portfolios. The rate of borrowing in so-called margin accounts has reached near the all-time highs just before the 2008 market crash. That strategy is attractive because such arrangements offer rates as low as 1 percent and sometimes even less, and they require no additional down payment because the banks hold the securities that back up the loans. “It’s almost no risk to the banks because the securities are pledged as collateral,” Vernon says.
The downside is that if the securities fall in value, the borrower’s assets can be liquidated. Vernon says he advises caution and recommends such borrowers keep “back-up emergency funds” like a home equity credit line. The rates can also increase as overnight bank-lending benchmark rates rise.
MBA’s Fratantoni worries that a further increase in interest rates could cause problems for borrowers at all income levels. “People’s credit has been getting better since the crisis,” he says. “But any time you see a rapid increase in rates, anything tied to variable rates has some additional risk.” Bankers and consumer advocates find themselves in rare agreement on the issue. Easing loan terms too much could be risky for banks and borrowers.
MATTHEW CRAFT / AP Business Writer
The Associated Press | July 25, 2013
NEW YORK (AP) — Disappointing results from PulteGroup, D.R. Horton and other home builders left major stock indexes with only tiny gains in afternoon trading. Technology stocks rose after Facebook’s earnings blew past analysts’ estimates.
Even with plenty of news from big companies, the broader market was mixed. Of the 10 industry groups in the Standard & Poor’s 500 index, five rose and five fell.
D.R. Horton, the country’s largest builder, and PulteGroup said orders for new houses jumped in the second quarter, but their results still fell short of what analysts had expected. PulteGroup also posted a 14 percent decline in profits
D.R. Horton dropped $1.77, or 8 percent, to $19.45. PulteGroup lost $1.95, or 11 percent, to $16.49.
‘‘Housing is taking it on the chin,’’ said JJ Kinahan, chief derivatives strategist at TD Ameritrade. ‘‘I think what you’re seeing a bit of today is people questioning what higher mortgage rates mean for housing.’’
Technology companies fared better. Facebook jumped 27 percent after reporting earnings late Wednesday that easily beat analysts’ forecasts thanks to higher revenue from advertisements on mobile devices. Facebook’s stock rose $7.16 to $33.68.
The Standard & Poor’s 500 index was up two points, or 0.1 percent, to 1,688 as of 2:30 p.m.
The Dow Jones industrial average rose two points, or 0.01 percent, at 15,543. The Dow was held back by Caterpillar, which warned of sagging sales on Wednesday.
The Nasdaq composite index rose 17 points, or 0.5 percent, to 3,596.
It’s nearly halfway through the second-quarter earnings season, and the overall trend looks good, but not great, said Tyler Vernon, chief investment officer of Biltmore Capital in Princeton, NJ. ‘‘There have been some big disappointments, like Caterpillar yesterday, but we’re seeing better and better numbers coming out.’’
Analysts forecast that companies in the S&P 500 index will report earnings growth of 4.3 percent over the same period last year, according to S&P Capital IQ. At the start of July, the forecast was for growth of 2.8 percent. More than six out of every 10 companies have cleared analysts’ earnings targets so far.
Eventually, improving profits should help push the S&P 500 index above 1,700 in the coming weeks, Vernon said.
In the market for U.S. government bonds, the yield on the 10-year Treasury note climbed to 2.62 percent from 2.59 percent the day before. Late last week, it was trading at 2.48 percent.
The 10-year yield acts as a benchmark rate for most mortgage loans. A sharp increase in the rate drives up mortgage costs and could slow down sales in the housing market.
It’s still very low by historical standards thanks in large part to the Federal Reserve’s massive bond-buying program. The yield hit a recent low of 1.63 percent on May 3. By contrast, it was trading around 4 percent in the summer of 2008, shortly before the worst days of the financial crisis.
Among other stocks making big moves:
— Las Vegas Sands, a major casino operator, fell $1.25, or 2.3 percent, to $53.69 after it posted lower revenue and income than financial analysts had expected.
— Harley-Davidson rose 40 cents, or 1 percent, to $56.27 following news that the Milwaukee-based motorcycle maker’s earnings rose 10 percent in the second quarter, driven by an aggressive expansion abroad and revamped production.
— Visa rose $8.06, or 4 percent, to $194.78. Visa returned to profitability in its third fiscal quarter and reported strong revenue growth as the company processed more transactions worldwide.
© Copyright 2013 Globe Newspaper Company.
By Steve Rothwell
Associated Press | May 2, 2013
NEW YORK The stock market is all about jobs this week.
Stocks rose Thursday after unemployment claims fell to a five-year low. A day earlier it was just the opposite; the market slumped after companies added just 119,000 jobs in April, the fewest in seven months, according to payroll processor ADP. And stocks could swing again Friday when the government’s closely watched monthly employment report is released.
“Everyone is looking to the April jobs numbers,” said Tyler Vernon, chief investment officer at Biltmore Capital. “People are more confident that it was an anomaly last month and are looking for some bigger numbers.”
Economists forecast that the employers added 160,000 jobs last month. Stocks slumped April 5 when the government said 88,000 jobs were added, less than half the number forecast.
Signs of increased hiring have supported this year’s surge in stocks and pushed the market to record highs. The run-up has started to falter in recent weeks on concerns that the global economy is slowing. More jobs should boost consumer spending, a key driver of U.S. growth.
The Dow Jones industrial average rose 130.63 points to 14,831.58 on Thursday, an increase of 0.9 percent. The index lost 138 points a day earlier. The Standard & Poor’s 500 index climbed 14.89 points, or 0.9 percent, to 1,597.59, also recovering almost all of its losses from a day earlier.
Applications for unemployment benefits fell last week to 324,000, the fewest since January 2008, the Labor department reported before the market opened.
The outlook for global growth also got a boost after the European Central bank cuts its benchmark interest rate a quarter of a percentage point to 0.5 percent.
The euro fell a penny against the dollar to $1.3060. The price of gold rose $21.40, or 1.5 percent, to $1,467.60 an ounce. The price of crude oil rose $2.96, or 3.3 percent, to $93.99 a barrel.
Higher profits from CBS, Facebook and other companies also lifted stocks Thursday.
Broadcaster CBS reported a 22 percent jump in first-quarter earnings as big events like the Super Bowl pushed advertising revenue higher. Its stock rose 95 cents, or 2 percent, to $47.35.
GM rose 98 cents, or 3.2 percent, to $31.16 after it lost less money in Europe and beat Wall Street’s expectations for first-quarter profit. The automaker’s earnings of 67 cents a share beat the 54 cents predicted by Wall Street analysts who follow the company.
Facebook gained $1.54, or 5.6 percent, to $28.98 after its first-quarter revenue rose 38 percent, surpassing Wall Street expectations. Nearly a third of the company’s advertising revenue came from mobile devices, a greater share than analysts had expected.
The social networking site bucked the trend for companies reporting in the first quarter. Most are exceeding analysts’ expectations on earnings, but falling short on revenue.
“If we continue to see several more quarters like this, investors would start to get nervous,” said Andrew Milligan, head of global strategy at Standard Life Investments. He says that growth needs to pick up in the major export markets, like China and Europe, for U.S. companies to maintain earnings growth.
Facebook’s earnings also boosted information technology stocks. The industry rose 1.4 percent, the most of the 10 groups in the Standard & Poor’s 500 index.
Technology stocks have surged in the past two weeks, after lagging the S&P 500 in the first three months of the year. Their 5.7 percent increase in 2013 still trails the 18.5 percent gain for health care companies, the best performing industry in the index.
Seagate Technology was another technology company that gained Thursday. The company, which makes hard drives, jumped $2.69, or 7.3 percent, to $39.63, even after the company reported a slump in sales and earnings. The decline wasn’t as bad as analysts had expected, though, and Seagate handily beat estimates for both sales and revenue.
Earnings at companies in the S&P 500 are at record levels. They are forecast to increase by 4.4 percent in the first quarter and keep rising throughout the year, according to S&P Capital IQ data.
Gains for technology companies helped push the technology-heavy Nasdaq composite higher. The index advanced 41.49 points, or 1.3 percent, to 3,340.62.
Stocks are rebounding after a slump Wednesday, when reports of slower manufacturing growth and hiring dragged down markets. The Dow had its worst drop in two weeks. The market was down even after the Federal Reserve Bank reaffirmed its plan to continue its stimulus program, which is now five years old.
For the year, the Dow is still up 13 higher, the S&P 500 is up 12 percent.
The gains suggest that the market is getting ahead of itself, given a lackluster outlook for the economy, said Uri Landesman of Platinum Partners. He thinks the stock market is set for a pullback.
In government bond trading, the yield on the 10-year note was unchanged at 1.63 percent, matching its low for the year. Bonds have gained as inflation remains tame.
Biltmore Capital Advisors’ Tyler Vernon is named a New Jersey Five Star Wealth Manager by New Jersey Monthly Magazine!
Press Release: Biltmore Capital Advisors – Thu, Apr 11, 2013 9:00 AM EDT
PRINCETON, N.J., April 11, 2013 /PRNewswire/ — Biltmore Capital Advisors president and CIO, Tyler Vernon, receives ranking among New Jersey Monthly Magazine’s 2013 Top Wealth Managers.
The list recognizes the efforts and success of financial professionals across the state. The award is presented by New Jersey Monthly Magazine that engaged Five Star Professional, an independent research company, to perform research and rankings of Wealth Managers in New Jersey.
“It is a tremendous honor to be ranked as a Five Star Wealth Manager,” says Vernon. “My team and I strive to consistently deliver outstanding service and investment advice, and this award underscores our ongoing efforts.”
Mr. Vernon is president and Chief Investment Officer at Biltmore Capital Advisors. Mr. Vernon founded the Princeton, NJ-based firm after spending nearly a decade working on Wall Street. Biltmore Capital Advisors specializes in investment planning and management, with a particular focus on alternative investment strategies. Mr. Vernon is often featured by the national media, including on CNBC, Fox Business, Bloomberg, and in the Wall Street Journal.
Vernon was featured in the January 2013 issue of New Jersey Monthly Magazine. Vernon was also recognized on the 2011 list.
About Biltmore Capital Advisors
Biltmore Capital Advisors is a SEC-registered investment advisory firm headquartered in Princeton, NJ. Tyler Vernon is Chief Investment Officer of the firm, which employs “family office” services and fiduciary oversight for high net worth clients, endowments and foundations.
For more information on Biltmore Capital Advisors and its offerings, please visit
CONTACT: Marissa Foy for Biltmore Capital Advisors at 610-228-2104 or
Award candidates were then evaluated against 10 objective eligibility and evaluation criteria associated with wealth managers who provide quality services to their clients such as client retention rates, client assets administered, firm review and a favorable regulatory and complaint history. Five Star Professional finalized the list of Five Star Wealth Managers to be no more than 7% of the wealth managers in the area.
• Wealth managers do not pay a fee to be considered or placed on the final list of Five Star Wealth Managers.
• The Five Star award is not indicative of the wealth manager’s future performance.
• Wealth managers may or may not use discretion in their practice and therefore may not manage their client’s assets.
• The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine.
• Working with a Five Star Wealth Manager or any wealth manager is no guarantee as to future investment success, nor is there any guarantee that the selected wealth managers will be awarded this accomplishment by Five Star Professional in the future.
For more information on the Five Star award and the research/selection methodology, go to www.fivestarprofessional.com
by Kathryn Tuggle, Personal Finance Editor
Dimespring | November 21, 2012
Interest rates may be at record lows, but that doesn’t mean you should pull the trigger on a major purchase before you’re ready. Whether you’re looking to buy a home or refinance the one you’ve got, it’s always best to put pen to paper and consult with experts before making a change. With that said, it’s unclear how long rates will remain below 4 percent, and nobody wants to miss the boat. We checked in with interest rate and mortgage experts to find out if now is really the best time to make a move.
Will interest rates ever be this low again?
“It’s certainly a generational low — no one has ever seen this before,” says Tyler Vernon, president and CIO of Biltmore Capital Advisors in Princeton, NJ. “There’s a camp who thinks we’ll enter a Japanese deflationary cycle, in which case we could see much lower rates. In our opinion that is not a very likely outcome, especially during a time when our Fed Chairman Bernanke has studied the Great Depression and seems to rely heavily on monetary policy, primarily the printing of more dollars.”
Vernon says that he does not think rates will go much lower, and that it’s likely that this will be the last time “our generation” sees these kind of rates.
It’s likely that interest rates will stay low until the economy is back in full swing and unemployment is down to at least 5 percent, says Joe Gross, marketing expert and president of Joe Gross Marketing in New York.
In the near future, interest rates will remain low due to the Fed’s commitment to purchase bonds, says Robert Luna, CEO of SureVest Capital Management in Phoenix, Ariz.
“Longer term I fear that this game can only last so long and will eventually lead to much higher rates,” Luna says. “I am much more concerned with rates rising looking three to five years out than I am in the shorter term. “
Should you move now on that purchase you’ve been debating?
“If you are referring to a home, yes,” says Vernon. “In our view, it’s quite clear that the housing market is coming back on a national basis. By instituting Operation Twist, the Fed has been intentionally buying long term bonds in attempts to drive down mortgage rates which are tied to bond prices. They have succeeded!”
Vernon says the historical lows we are seeing on mortgage rates is helping the housing market by making loans cheaper — leading to a win-win for both first time and existing home buyers.
“Consumers should certainly move now if they are considering a big-ticket purchase because interest rates are about as low as they’re going to get,” says Odysseas Papadimitriou, CEO and founder of Evolution Finance and CardHub.com. “The credit card data we monitor on an ongoing basis shows that 0 percent offers have plateaued as of late, with the average introductory period lasting right around 10 months. Failing to pull the trigger now could therefore cost you a lot of money down the road when rates rise and finance charges become a bigger factor.”
If you’re considering a major life-changing purchase like a house or a car, etc. should low interest rates even influence such a significant purchase in your life?
“Yes, low rates should certainly influence your timing,” says Vernon. “Make sure, however, that you can afford this kind of property and don’t just buy it because rates are low. If the timing is right and you find a home or car you like, assuming you need it, it certainly is the time to buy.”
Vernon cautions that if it’s a car you want to buy, you may have to negotiate a bit as companies can make a lot of money by charging you a higher rate.
Luna says he feels this is the “ideal environment” in which to be borrowing, as “outside of rising rates, all of the monetary stimulus we have witnessed will lead to much higher inflation.”
Overall, it’s okay to let lower rates influence your buying and borrowing decisions because at the end of the day, it’s your monthly payment that dictates whether or not you can live comfortably, says Gross.
“The lower the rate the lower the payment and that means you can afford things that you couldn’t afford before or otherwise,” Gross says.
How do you know when you should make your move and when you should sit on the sidelines?
“You need to have a need,” says Vernon. “Don’t just buy to buy.”
By Richard Satran September 7, 2012
The love fest of the political convention season ended almost as soon as it began, when the first prime-time speaker, House Speaker John Boehner, set a Republican agenda that “starts with throwing out the politician who doesn’t get it, and electing a new president who does.” Since then, the two parties have launched into a brawl in which few rules apply, and flame-throwing and facile lies are standard gear.
The loser could well be you and your stock portfolio over the next two months. Much of the heated rhetoric will consist of Republican claims that President Obama mishandled the economy or Democrats saying how they believe Mitt Romney’s programs would hurt people more.
In that kind of environment, investor confidence, already low, could sink further, say some analysts. Fund company T. Rowe Price said in its recently monthly report, “investors are focused on an apparently never-ending eurozone crisis and the campaign rhetoric emanating from both major political camps in the U.S.”
Good-time elections now history. Historically, election years have been good times for investors. But over the past five elections, the Dow has fallen an average of 3.72 percent, and declined in four out of five September-to-November election day periods.
“The past several presidential elections, and politics in general, just keep getting more nasty,” says Tyler Vernon, chief investment officer and co-founder of Biltmore Capital Advisors in Princeton, N.J. “It’s not the way things were 25 years ago. Over the past few cycles, it has become much more negative. With Democrats and Republicans, the attack ads are questioning leadership more and more. It hurts investor confidence.”
The perception that advertising is growing more negative is borne out by numerous studies. A recent one by the Wesleyan Media Project showed negative ads rising by a staggering amount—accounting for 70 percent of all presidential advertising in the early few months of this year, compared with just 9 percent in the 2008 period (although other factors, including fewer positive ads run by groups supporting Obama in this cycle, caused some of that shift.)
The big difference over the past four years is that so-called Super PACs have been freed from spending limits, or even listing contributors, and the Big Money advertising has been overwhelmingly negative, the Wesleyan study showed.
Politicians have always had a penchant for painting a negative picture of their opponents—some remember President Johnson’s vivid black-and-white television ad showing a girl picking a flower as a nuclear mushroom cloud appeared behind her, a slap against his opponent Barry Goldwater’s strident anti-Communism, or George H.W. Bush’s ads accusing Massachusetts governor Michael Dukakis of furloughing a convicted murderer, Willie Horton, who embarked on a violent crime spree.
Those negative campaigns, though memorable, were not the norm. The LBJ ad was quickly withdrawn. And ads were often about “finding prosperity,” rather than slamming the economy, Vernon says. From 1900 to 1988, the market scored nearly twice as many gains as losses in the September-through-November election span. The Dow gained in 15 of the years and declined in eight. The average September-to-election gain was 1.7 percent, exactly in line with the average gain for all two-month periods since 1900.
Impact of financial crisis. The most recent election losses can be blamed at last partly on the crash of 2008, which was an election year event, although election years of the past also had some ugly Octobers, including the 1932 pre-election period in which stocks plunged 20 percent.
But the rising importance of the economy as an election factor and a surge in negative advertising are also playing a critical role, studies show. It’s not just your imagination; things really have gotten uglier since the days of Ike and Adlai, or even since Bill Clinton and George Bush the First.
The Google Ngram tool, which measures and displays keywords in publications going back to 1800, shows a dramatic “hockey stick” upswing in the term “negative political advertising” after 1988. It also shows the steady rise of the phrase “the economy” in the national dialogue. Social issues and foreign policy have faded, in relative terms.
The issue-oriented negative ads might be even more effective at swaying voters than obvious personal attacks, suggested one study by two Rutgers professors and one from George Washington, “The Effects of Negative Campaigning, A Meta-Analytic Reassessment.” They saw significant potential for the practice to undermine public sentiment.
“When that happens, people spend less, they don’t hire, they don’t buy homes,” says Vernon.
The focus on business issues likely reflects the fact that many of the Super PAC contributors are wealthy and tend to be most interested in issues affecting their financial standing. Supreme Court rulings in 1976 and 2010 affirmed a free-speech right to spend one’s money on political campaigns without limit, freeing wealthy contributors and candidates of key post-Watergate campaign reforms. Many politicians began shunning matching funds to give them more fund-raising freedom.
What investors are doing. “A lot of people are just incredibly confused about the economy, and they are like deer caught in the headlights,” says Vernon. “The campaign promises and attacks are not helping. There is always uncertainty about elections, but it is really magnified this time. The leadership, both Democrat and Republican, acts like they are in kindergarten when it comes to getting things done. They prefer to do things that are right for the party, not for the country,” citing the near shut-down of the federal government over the disagreement on extending the debt ceiling.
Still, the market responds to influences well beyond the scope of any election, and there’s no doubt it’s been surprisingly strong in the August through early September period with the S&P returning to prerecession highs. But economic indicators, like the latest ugly jobs report, are still weak. “It’s hard to get really excited about the market when all that really gets it going is the chance for easier Fed policy,” says Vernon.
He is advising his own clients “to stay long, but stay hedged.” He advises a balanced portfolio and a long-term view. Studies in the past have shown that the market does worst during the first two years of a presidential term, and tends to do better the second two years.
While stocks have performed poorly in recent pre-November periods, bonds have been generally stronger, gaining in price and offering steady yield.
“From now to the election, bonds will be a fairly good place to be,” Vernon says. “People do not want to invest in riskier things when there is a high level of uncertainty. And there is a lot of that out there now.”
By David K. Randall
NEW YORK | Tue Apr 17, 2012 1:13pm EDT
(Reuters) – Market history may be repeating itself.
Through Monday, the Standard & Poor’s 500 stock index was up 9.0 percent for the year to date, thanks in large part to signs that the U.S. jobs market and retail sales were improving. It’s a performance nearly identical to last year, in which the S&P 500 index jumped 8.4 percent between the first of the year and its high in April.
Some analysts are beginning to worry that 2012 will follow the same pattern.
“Make no mistake, there’s no way this year will continue to go smoothly,” said Andrew Goldberg, global market strategist for J.P. Morgan Funds.
It’s tempting to simply move money to cash or short-term Treasury bonds whenever there is a hint that the market rally is peaking. But there are better ways to protect a portfolio from a sustained slide without giving up the chance for future gains.
Here are suggestions on how to play a possible repeat of 2011.
PREVENT A PULLBACK
Last year, spiking oil prices from the revolutions in the Middle East, a slowdown in the global economy from Japan’s massive earthquake and tsunami, and political flare-ups in Washington resulting in a credit rating downgrade, all sent the S&P 500 index sliding. A rally that began in October helped the S&P 500 eke out only a 2.0 percent gain for the year, after dividends.
Goldberg worries about a repeat of last year’s volatility with nagging problems such as Europe’s sovereign debt crisis and another spike in oil prices on talk of an armed conflict between Iran and Israel. The U.S. is also is facing a steep cutback in government spending at the end of the year that could make the economic growth stall, he said.
Some money managers are now turning to the options market as a way to lock in profits.
Tyler Vernon, chief investment officer at Princeton, New Jersey-based Biltmore Capital Advisors, is increasingly opting for covered call options to protect his clients’ assets from a market pullback. These options allow an investor to sell a contract that would obligate them to sell a stock at a given price at a designated future date, in exchange for an upfront payment. Investors who sell covered calls continue to hold on to their positions and collect stock dividends in meantime.
Vernon is selling January 2013 contracts that allow investors to sell shares of Caterpillar at a price of $110. The income from each covered call he sells is $9.50 per share, he said.
“The real risk here is the upside is capped. But most of my clients say that they are willing to get a nice premium payment up front and continue to get dividends when they don’t think that this position could go up another 5 to 10 percent,” he said.
Vernon is also turning toward mutual funds that take both long and short positions in funds, a tactic that he says is cheaper than investing money in a traditional hedge fund. He likes the Marketfield fund, a $1.3 billion fund that charges $1.56 per $100 invested.
The fund owns 55 long stock positions and 16 short positions, and is shorting emerging markets and China through ETFs, according to Morningstar data.
“Timing is the major risk in this fund’s strategy,” wrote Josh Charney, a fund analyst at Morningstar, in a research report.
Marketfield is up 5.3 percent for the year to date and 8.9 percent over the last 12 months, according to Morningstar. Its largest long position is a stake in industrial supplier W.W. Grainger shares are up nearly 14 percent so far in 2012, and they yield 1.2 percent.
Sam Stovall, chief equity strategist at S&P Capital IQ, thinks that now might be the time to shift dollars into classic defensive sectors like healthcare and consumer staples.
He has history on his side. Since 1990, rotating into these defensive sectors in May and then moving back into the broad S&P 500 index in October produced an annual return of 10.7 percent, he said. Investors who stayed in the broad S&P 500 index the whole time notched returns of 6.7 percent, he noted.
“There’s the old Wall Street saying of ‘sell in May and go away.’ This might be a year in which you might want to take that saying literally,” he said.
ETFs might be the easiest way to do this. The $989 million Vanguard Consumer Staples ETF, for instance, charges 19 cents per $100 invested and yields 2.2 percent. Its top holdings are Procter & Gamble Co, Coca-Cola Co and Philip Morris International Inc.
The fund is up 6 percent this year, as of Friday’s close, and gained 13.6 percent in 2011 despite the broad market’s small gains.
Stovall said that there also might be a technical-trading case for moving into defensive stocks. S&P’s technical trading analysts expect the S&P 500 to follow a similar pattern to last year: falling to about 1340, regaining some of its losses, and then suffering a more pronounced decline.
Bill Stone, chief investment strategist at PNC Asset Management Group, is looking toward technology companies as a hedge against another market pullback like in 2012.
“Technology on the surface doesn’t appear to be defensive, but it happens to have companies with low payout ratios, high amounts of cash, and little amounts of debt,” he said. He expects more companies to follow Apple’s lead and either initiate or increase their cash dividends.
The Technology Select SPDR is one option. The $9.3 billion fund costs 18 cents per $100 invested and yields 1.3 percent. The fund has nearly 20 percent of its assets in Apple Inc. International Business Machines Corp, Microsoft Corp and AT&T Inc round out its top holdings.
(Reporting By David Randall; Editing by Walden Siew)
March 25, 2012 6:01 am ET
Finding income at a time when all the usual suspects are offering next to nothing in the way of yield requires both creativity and a stomach for a bit more risk. That said, it turns out there are some interesting and relatively simple income strategies that can produce yields well beyond what retirees might get from Treasury bonds or certificates of deposit. Of course, it is worth noting that the following examples of ways to generate income all come with one significant disclaimer: Neither the income nor the principal is guaranteed.
Selling call options on equity-based exchange-traded funds represents a relatively easy way to generate income with stock market exposure.
The sale of intermediate-term call options on a broad market index ETF such as the SPDR S&P 500 ETF (SPY) can generate steady and predictable income for retirees while also acting as a hedge on the downside.
Technically, the strategy doesn’t provide any real downside protection, but the income from the rolling sale of call options that expire every one to three years can be viewed as lowering an investor’s cost basis, according to Ken Himmler, president of Integrated Asset Management LLC, a $100 million advisory firm.
He likes the covered-call strategy because of the way it keeps the category of normally risk-averse retirees exposed to the growth potential of the equity markets, though the upside is muted.
In a simplified example, the owner of an index ETF trading at $100 might sell a one-year call option with a strike price of $105 to another investor for $1.
The owner of the call has the option to purchase the ETF at any point during that one-year period for $105, even if the ETF spikes to $110.
If that happened, the owner of the ETF would net $105, plus the $1 earned for the sale of the call option.
If the option expired before being called, the owner of the ETF would keep the $1 and sell another call option for more income.
“For a retiree, this is a beautiful strategy because it increases income through the option premium, and it limits downside by theoretically lowering the cost basis,” Mr. Himmler said.
Most fans of bond-laddering strategies are first and foremost attracted to the predictability of the income stream.
Whether it is established while an investor is still working or during retirement, there is nothing quite like the expected income that can come from a portfolio of bonds that are maturing in a staggered fashion over a multiyear period.
In a perfect world, where an investor would have managed to save enough to have a fully funded retirement portfolio, a bond ladder strategy might be all you needed.
Bonds of various maturities could be purchased and cashed out at expiration in one-year intervals throughout 30 or more years of a relaxing retirement.
“For most people, however, who are not so rich or not so frugal, they can’t just buy an all-bond portfolio,” said J. Brent Burns, president of Asset Dedication LLC, which builds fixed-income separate accounts.
Thus, like an annuity or most other income strategies, the bond ladder route can act as a handy supplement to a more aggressive equity strategy.
“If you’ve got a 65-year-old who needs 30 years’ worth of retirement income, we’ll use a bond ladder to create eight to 10 years of income certainty,” Mr. Burns said.
By taking a portion of the overall retirement portfolio and building a bond ladder with bonds that mature during the first several years of retirement, investors are able to take on more risk in the equity markets without affecting current income.
When the equity markets are strong, the financial adviser can sell stocks for income and/or add another rung to the long end of the bond ladder.
When the equity markets aren’t so strong, the income comes directly from the maturing bond at the front end of the ladder.
Closed-end funds represent one of the few places where investors still can find attractive yields in the fixed-income area, as long as investors are ready to embrace some credit risk.
The universe of 175 taxable-fixed-income closed-end funds is generating an average yield of 6.9%, which compares with 2% for the 10-year Treasury.
The reason for the higher yield is also part of the risk, according to Stephen O’Neill, a portfolio manager and trader at RiverNorth Capital Management LLC, which has $1.7 billion under management.
“These kinds of funds will typically borrow at short-term rates and buy longer-term assets, and that means the average fund is about 30% leveraged,” he said.
The leverage represents risk because the current low cost of borrowing is a significant contributor to the yields that these closed-end funds are generating.
However, as Mr. O’Neill said, the latest announced policy by the Federal Reserve that short-term rates will be kept at near zero until at least late 2014 represents a green light for this kind of strategy.
“Rising rates represents the enemy because if there is a nonparallel shift where short-term rates start to rise faster than longer-term rates, the cost of borrowing goes up and the distributions will go down,” he said. “But right now is the ideal backdrop for this strategy.”
Advisers looking at closed-end funds for income should consider yield along with a fund’s value in relation to its net asset value.
For example, in the taxable-fixed-income area, the average fund is trading at a 1.5% premium to NAV, but that doesn’t mean there aren’t funds trading at attractive discounts.
The Nuveen Multi-Strategy Income Fund (JQC) is trading at a 7.7% discount to NAV, with 20% leverage and an 8.7% yield.
The BlackRock Credit Allocation Income Fund (BPP) is trading at a 9.6% discount, with 30% leverage and a 6.7% yield.
Master Limited Partnerships
In an environment with such limited sources of income, it is sometimes necessary to step outside one’s comfort zone, and that leads us to master limited partnerships.
The biggest appeal of these infrastructure partnerships is an average annual yield of nearly 7%.
“The yield on these products has grown by about 3% or 4% annually over the past few years, and it’s expected to grow by more than 5% this year,” said Tyler Vernon, chief investment officer at Biltmore Capital Advisors LLC, which manages $700 million.
If invested as a partner, an MLP can trigger significant tax consequences and headaches that might involve tax filings in multiple states where an MLP is operating.
For direct investors, part of the appeal is that the taxes on the quarterly distributions are deferred until the investment is sold, and can even be avoided entirely if held until the investor’s death.
In fact, because of the way that the distributions lower the cost basis, investors have a strong incentive to hold an MLP investment for as long as possible.
A growing alternative to direct ownership is coming courtesy of the mutual fund industry, which has started packaging MLPs inside registered products.
SteelPath Fund Advisors LLC, which launched the industry’s first MLP mutual fund in March 2010, now has a small suite of products, including the $800 million SteelPath MLP Select 40 Fund (MLPTX), which is yielding 6.2%.
Mr. Vernon is a fan of an ETF version, the Alerian MLP ETF (AMLP), from Alps Advisors Inc., which is yielding 6%.
By Kathleen Biggins GENIUS COUNTRY
Tyler Vernon watched both planes fly into the World Trade Center on 9/11, one from his office at Merrill Lynch, and one as he was fleeing Manhattan.
Like many New Yorkers, he thought about what would have happened if the plane had veered slightly to the left and into his building, and began reevaluating his own path. While already a Vice President, he felt he was “grinding” through his work day, and after 9/11 he began to plan for a change of life, and a change of venue. But first, he changed his marital status, quickly becoming engaged to Molly, who he had been dating since meeting at the Subway Series in 2000.
Like Molly, Tyler had grown up on a farm. His father was a veterinarian who owned a vineyard in Tewksbury, NJ. Tyler loved rural settings and dirt roads, as well as great restaurants, theaters and clubs. Molly’s love of Princeton and The Stuart Country Day School swayed him towards the Princeton area. Because his father had worked such long hours, Tyler was committed to headquartering Biltmore Capital Advisors in Princeton and avoiding the commute to New York City so he could spend more time with his family.
Tyler’s approach to business is straight forward: work hard, do what you say, and do it when you say you are going to do it. He believes many people “don’t do the follow through,” even on the simple common courtesy things. Tyler follows this approach, but his success may be due in part to something else — his ability to deliver more than is expected.
When Tyler recounts how he got his first position on Wall Street, it is clear he has the buckle down, outperform mentality that helped him launch a successful new business.
As a college student attending Lafayette College in Easton, Pennsylvania, he realized engineering was not the right career path for him despite the fact math and science came easily. He wanted something more people centric, and like many ambitious young students, cast his eyes towards Wall Street. He felt handicapped as his family did not have personal contacts to help get an initial interview. He applied for an unpaid internship, but the hiring manager didn’t respond to multiple emails and calls. That didn’t stop Tyler. He hopped a bus for the two hour trip to Manhattan, walked into the World Financial Center and announced he was there to see the hiring manager who had ignored him. Not surprisingly, the manager was impressed and Tyler got the internship.
Perhaps equally telling, once he had secured the internship, Tyler did not let up. He made sure he was the first intern to arrive in the morning, awakening at 4:30 am every Friday during the school year, taking the bus two hours in and two hours back. During summers he continued with unpaid internships while working at restaurants at night and weekends to pay for his walk-in-closet sized apartment in Queens. ”I was pretty much working 24/7. But I knew that’s what I had to do. I had to create my own path,” he says with a shrug.
Tyler continues to buckle down and outperform. “Everyone calls themselves ‘Financial Advisors,’ including CPA’s and insurance brokers. We are looking for ways to set ourselves apart from the competition, thinking about what we can to do make clients lives easier, better, more confident in their investment and retirement plan,” he explains.
“The stock market has done nothing in ten years. We want to give people a new direction, a new way of living in retirement. Not the same old thinking about investing in stocks, but strategies to approach other markets,” he explains, adding with a smile, “Our approach is catching on quickly.”
Indeed. Biltmore Capital Advisors signed on its first clients in early 2008, right before the meltdown leading to the Great Recession. At a time when many financial firms were imploding, Biltmore Capital Advisors has been “catching on” — doubling its revenue in 2010 and growing 30% over each of the last two years, expanding to 15 employees, and opening offices in Dallas and Atlanta. In fact, most of its high net worth individual and institutional clients live outside of the Princeton area, something Tyler would like to change long term so he and his employees can stay off airplanes and closer to home.
To that end, Biltmore Capital Advisors has started to focus its marketing efforts in the tri-state area, and reaching out to make more local connections. Tyler has introduced clients from around the country to several local businesses, such as banks, mortgage companies and insurance firms. He is also holding events to showcase Biltmore Capital Advisors to local investors. The last one, held at the Nassau Club, was so popular invitees had to be turned away.
Tyler has grown to love Princeton, making good friends and reveling in the cooperative spirit among businesses here. In fact, Tyler believes personal relationships in Princeton helped his firm survive and thrive. As Biltmore Capital Advisors was launching in 2008, Tyler gave a presentation where he predicted the investment market was about to become “frothy” and advised investors to move towards cash. News of Tyler’s investing wisdom created buzz on Wall Street and newsmakers from Fox Business News and CNBC quickly asked him to share his investing insights with their international audiences. Tyler became a regular commentator on both business news networks, and Biltmore Capital Advisors‘ name recognition soared.
Not surprisingly, when asked to reflect on his own success and to provide advice for others, Tyler’s answer sounds a lot like Molly’s, “Find a passion, run with it, and it will all work out in the end.”
By CNNMoney staff @CNNMoneyMarkets January 19, 2012: 12:16 PM ET
NEW YORK (CNNMoney) — U.S. stocks advanced for a third straight session Thursday, as investors welcomed a slew of positive news on both the earnings and economic fronts.
“The positive bank results were really unexpected,” said Tyler Vernon, chief investment officer at Bilmore Capital. “The past six months have been a terrible environment for banks, but it looks like things are getting better, which is generally better for the economy, too.”
Meanwhile, the government released an onslaught of economic data, including reports on housing, unemployment claims and inflation. Investors were encouraged as initial jobless claims fell to their lowest level in nearly four years, in another sign of improvement in the long-suffering labor market.
However, concerns that the sharp drop may be one-time blip rather than a start of a new trend kept a lid on gains, said Vernon.
“Traders are concerned about seasonality factors, and worried that claims could return to the status quo over the next coupe of weeks, so they’ll wait to see what happens,” he said.
Investors remain focused on Europe’s crisis this week. Early Thursday, Spanish and French bond auctions drew solid demand, calming some fears about Europe’s ability to fund its debt.
Greek officials will continue talks with the group representing private-sector investors and banks Thursday in an attempt to reach an agreement on the size of the writedown these creditors will take. No accord has yet been announced, but the creditors’ representative says one may come in the days ahead.
Economy: The government released December data on inflation, building permits and housing starts, as well as its latest tally of weekly jobless claims.
The Labor Department reported that 352,000 people filed for initial unemployment benefits last week, down sharply from a revised reading of 402,000 claims in the previous week. It is also the fewest number of people filing for jobless claims since the week ending April 19, 2008.
Consumer prices held steady last month, largely due to declining gas prices. The government’s key measure of inflation, the Consumer Price Index, showed prices were virtually unchanged from November to December.
The index for items minus food and energy rose 0.1% in December, after rising 0.2% in November.
Housing starts fell 4.1% in December, to an annual rate of 657,000 units. Building permits slipped 0.1% to an annual rate of 679,000.
The Philadelphia Fed Index showed that manufacturing activity continued to improve in January in the mid-Atlantic area, rising to 7.3 from 6.8 in December.
Some of the nation’s biggest tech firms will report their corporate results after the closing bell Thursday, including Google (GOOG, Fortune 500), IBM (IBM, Fortune 500), Intel (INTC, Fortune 500) and Microsoft (MSFT, Fortune 500).
Google is expected to post robust earnings of $10.49 a share, up from $8.75 a year earlier. Microsoft’s earnings are expected to remain essentially flat compared to the prior year, at 76 cents a share. IBM’s earnings per share are projected to climb from $4.18 a year earlier to $4.62.
Oil for February delivery added 41 cents to $101 a barrel.
Gold futures for February delivery ticked down $3.90 $1,656 an ounce, losing momentum from earlier gains.
Bonds: The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 1.98% from 1.90% late Wednesday.
First Published: January 19, 2012: 9:39 AM ET