Heads Up!

by Thomas M. Riddle, CPA, CFP®, Founder & Chairman of the Board

The next three decades hold extraordinary promise.  Breakthroughs in robotics, healthcare & biomedical, 3D print manufacturing, artificial intelligence, and many other fields collectively hold the potential to spectacularly raise U.S. living standards.   But, and there is a “but” unfortunately, the U.S. faces a significant obstacle to achieving this promise.  That obstacle is high and quickly escalating U.S. debt levels and the annual interest payments on it.

Within 5 years the U.S. may enter a vicious spiral when debt is growing, interest payments are growing even faster and Treasury debt holders start to doubt our government’s ability to repay.  At such a time interest rates could rise to compensate Treasury debt investors for taking the risk.  Higher interest costs will be financed by even more debt – and the spiral continues.

When the spiral starts, Washington will face difficult choices to attempt to fix the problem:  cut expenses (including Entitlements) or raise taxes.  Based upon my 45 years of work experience, including 3 years with the U.S. Treasury Department, I believe it is highly likely Washington will raise taxes.  The tax increase will have to be substantial to stop the spiral.

What will result when the U.S. dramatically raises taxes?  Wealth, and the breakthroughs funded by it, may move to other countries with lower tax burden.  You do not have to too look far to find examples of this phenomena on a local level.  What caused the many corporate high rises in Conshohocken and City Line Avenue to be built instead of the highly taxed Philadelphia?  Same for the incredible number of commercial buildings in Northampton and Lehigh counties instead of the higher taxed state of New Jersey.  Or, southern Wisconsin instead of Illinois/Chicago.  Or, Nevada instead of California.  The bottom line is the debt spiral will probably continue.

In the near future we will report on the signs to look for when investors lose confidence in a country’s ability to repay its debts – history is full of examples.

Valley National News

We are hiring Associates through our Entry Level Professional (ELP) Program.

The ELP program, in its sixth year, is designed to immediately integrate talented individuals into Valley National’s expanding “one-stop” financial planning business model through hands-on training, continuing education, and mentorship in the areas of financial planning, tax preparation, and investment management.

Read more about this opportunity at our website, and share the link to the online application page.

The Numbers & “Heat Map”


Sources: Index Returns: Morningstar Workstation. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. Three, five and ten year returns are annualized excluding dividends. Interest Rates: Federal Reserve, Freddie Mac


The health of the US economy is a key driver of long-term returns in the stock market. Below, we grade 5 key economic conditions that we believe are of particular importance to investors.



Consumer spending is expected to strengthen as individuals with lower tax rates spend their windfalls.



The Federal Reserve increased the Fed Funds Rate by 0.25% in March, and is expected to implement at least 2 more hikes this year. Rising interest rates tend to reduce economic growth potential and can lead to repricing of income producing assets.



4th quarter earnings season was stellar, with S&P profits growing at a fast pace. Q1 2018 earnings season starts in April.



The unemployment rate currently stands at 4.1%, the lowest reading since 2000. March’s headline jobs growth number was slightly below expectations, but there is substantial evidence that the prospects for those seeking work are very favorable.



Inflation is often a sign of “tightening” in the economy, and can be a signal that growth is peaking. The inflation rate remains benign at this time, but we see the potential for an increase moving forward. This metric deserves our attention.




The above ratings assume no international crisis. On a scale of 1 to 10 with 10 being the highest level of crisis, we rate these international risks collectively as a 5. These risks deserve our ongoing attention.

The “Heat Map” is a subjective analysis based upon metrics that VNFA’s investment committee believes are important to financial markets and the economy. The “Heat Map” is designed for informational purposes only and is not intended for use as a basis for investment decisions.

Did You Know…?

There is exactly one week left to submit your individual tax returns to the IRS. April 17, 2018 is this year’s official tax deadline – due to the 15th falling on a Sunday and Monday being Emancipation Day – a legal holiday in the District of Columbia.

Emancipation Day is a holiday in Washington DC to mark the anniversary of the signing of the Compensated Emancipation Act, which president Abraham Lincoln signed on April 16, 1862. Local government offices are closed and many public services do not operate. In all other areas of the United States, April 16 is a normal day and public life is not affected.

The Act is different than the Thirteenth Amendment to the United States Constitution, which formally ended slavery in the US. The Amendment was proposed on January 31, 1865, and ratified by 30 of the then 36 states in the same year. However, it was only ratified in Mississippi in 1995.

“Your Financial Choices”

The show airs on WDIY Wednesday evenings, from 6-7 p.m. The show is hosted by Valley National’s Laurie Siebert CPA, CFP®, AEP®. This week Laurie will discuss:

Retirement Planning Considerations.”

Laurie will take your calls on this or other topics. This show will be broadcast at the regular time WDIY is broadcast on FM 88.1 for reception in most of the Lehigh Valley; and, it is broadcast on FM 93.9 in the Easton and Phillipsburg area– or listen to it online from anywhere on the internet. For more information, including how to listen to the show online, check the show’s website www.yourfinancialchoices.com and visit www.wdiy.org. 

The Markets This Week

by Connor Darrell, Head of Investments

After a rough start to spring, the market seemed to turn a corner during the middle of last week, when on Wednesday equities opened sharply lower but came roaring back to close the day in the black.  However, more disruptive trade talk on Friday erased all of the week’s gains. The Department of Labor also released its March jobs report on Friday, but anyone looking for an encore to February’s blockbuster report to provide some respite was left disappointed. The economy continued to add new jobs, but the rate of growth (103,000 new jobs) came in below expectations.

For equity investors, the transition from 2017 to 2018 has not been easy to stomach. Volatility has become the new norm, and news headlines that would have been shrugged off a year ago are now sending shockwaves throughout investors’ portfolios. We expect this trend of increased volatility to continue as markets come to terms with a much wider range of factors to consider. Monetary and fiscal policies are now pushing in opposite directions (the Federal Reserve’s policy of raising interest rates is considered to be contractionary, while tax cuts are considered to be expansionary), and rising trade tensions have added a new dynamic to the equation. All of this is occurring as we are yet another year further along in the economic cycle.

Volatility: Where Economics and Psychology Meet

Periods of heightened volatility are uncomfortable, but provide an excellent opportunity to reflect upon the psychological aspects of investing. When markets are firing on all cylinders, it can be awfully easy to forget that investing involves risk.  Ech and every one of us has a different level of tolerance for how much risk we are willing to accept, but often times we don’t know our true tolerance until we experience real volatility. If you find yourself losing sleep over the ebbs and flows of the equity market, then that probably means your portfolio is too aggressive. In many ways, the best portfolio allocation is not the one that maximizes your return, but the one that best aligns with your financial goals and risk tolerance.

Morningstar, a well-respected voice in the investment community, released a study back in 2017 that explored why the average portfolio has struggled to keep pace with the overall market. Their conclusion was that many investors try to time the markets, a notoriously difficult (if not, impossible) thing to successfully implement on a consistent basis. Not only is this approach typically unsuccessful, but it also adds transaction costs and can be very inefficient from a tax standpoint. Over the long term, the best portfolio strategy is the one that enables you to remain disciplined and “in the game.” Sometimes that means building a portfolio that may not keep pace with every bull market, but will provide you with peace of mind when the going gets tough. The ability to match your portfolio with your goals and risk tolerance, in addition to their role as a behavioral “coach” during periods of market stress, are two of the most significant benefits of working with an advisor that is familiar with your unique situation.