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Boutique Fiduciary-Based Wealth Management

Mader & Shannon Wealth Management's independence means we are free to focus solely on the needs and objectives of our clients.

We are committed to providing value to our clients and have structured our entire organization around this concept.

Portfolio Management

We define value in portfolio management as achieving yield and growth objectives with as little risk as possible while minimizing transaction costs and taxes. Active Money Management - The goal of active money management is to protect the client from major downtrends resulting from the collapse of an overvalued market, and still allow the investor the opportunity to participate fully in the growth in value and income that the equity markets have historically provided.

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Financial Planning

Retaining an independent financial professional is as important for planning as it is for portfolio management. Mader Shannon has no commitment to any product or service that will in any way conflict with the best interests of our clients. Our services are designed to offer objective advice and set reasonable expectations. We take the time to educate clients on suitable financial solutions, carefully exploring risk and performance expectations.

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Our Team

James W. Mader, CLU, ChFC Photo

James W. Mader, CLU, ChFC

Chairman and CEO
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James W. Mader, CLU, ChFC

Chairman and CEO

James W. Mader is founder & President of Mader & Shannon Wealth Management, Inc., an independent asset management and financial planning firm. He has been in the financial services industry for 46 years, where he spent the first 26 years as a marketing executive with two life insurance companies. In this capacity, Jim hired, trained, and managed thousands of financial services representatives.

He received the designations of Chartered Life Underwriter and Chartered Financial Consultant from the American College of Bryn Mawr, Pennsylvania in 1977 and 1984 respectfully.

Jim is the past president of the Kansas City chapter of the Society of Financial Services Professionals He has served a 3 year term on the national board and has served for the past 5 years as chairman of their investment committee who oversees the Society’s trust fund. The Society is a more than 80 year old organization of credentialed professionals with over 11,000 members nationally. The organization is made up of financial professionals from accounting, insurance, investments, and law.

Jim is licensed in more than a dozen states for life, health, disability, and long term care insurance.

Jim has provided expert witness services for investment and insurance litigation for law firms in Kansas, Kentucky, Missouri, and Nevada.

George R. Shannon  Photo

George R. Shannon

Co-founder, Advisor
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George R. Shannon

Co-founder, Advisor
Portfolio Manager 2001 - 2016

George R. Shannon attended The University of Texas at Austin on a football scholarship, where he graduated with Honors. He then was accepted and attended the UT Austin Graduate School of Business MBA program for two semesters. George left the MBA program to join the Merrill Lynch account executive training program in New York, to become a Merrill Lynch Account Executive in Houston. After a year as a stockbroker with Merrill Lynch in Houston George applied for the Ph.D. program in economics at the University of Texas at Austin, was accepted into that Ph.D. program and took graduate coursework in Economics for two years. While in Austin he was recruited by Rotan Mosle, at that time the oldest brokerage firm in Texas, well known for expertise in the burgeoning oil and gas business in Texas. For a time George both worked as a stockbroker with Rotan Mosle in Austin and pursued his Ph.D. at the University of Texas. During that time he also provided a market report on KVET radio at 5:15 am each weekday morning. George left the Ph.D. program at the University of Texas, eventually joining E.F. Hutton, and later was recruited for management training by PaineWebber. George went through the PaineWebber Management Training program in 1986, again in New York. George has since managed brokerage offices for major brokerage firms such as PaineWebber, A.G. Edwards, and Southwest Securities, Inc.

George brings to Mader & Shannon forty years of experience in the financial markets and the brokerage industry; an excellent formal education in accounting, economics, and finance; and a proven track record of investment analysis and portfolio management. George has an analytical appreciation of value based on fundamental analysis, and believes an appreciation of the liquidity of markets, coupled with an in-depth understanding of the history of asset category performance; provide important keys to successful portfolio management.

George believes three of the most notable recent academic articles concerning reasonable expectations for future financial market performance are the contrasting views expressed by "Valuation Ratios and the Long_Run Stock Market Outlook: An Update"† by John Y. Campbell and Robert J. Shiller: "Stock Market Returns in the Long Run"† by Roger G. Ibbotson and Peng Chen: and "From Efficient Markets Theory to Behavior Finance" by Robert J. Shiller.

Bret Guillaume, CFP® Photo

Bret Guillaume, CFP®

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Bret Guillaume, CFP®


Bret Guillaume joined Mader & Shannon as a Financial Advisor in 2004. A graduate of the University of Missouri - Kansas City, Bret holds the designation of CERTIFIED FINANCIAL PLANNER™ professional.

Prior to joining the firm Bret held the position of Trader with JPMorgan in Tampa, Florida. Prior to JPMorgan, Bret traded options as an independent Registered Representative. Before entering the financial services industry Bret spent several years as a technology consultant for Andersen Consulting and CCP Global.

Bret is Past President of the Kansas City chapter of the Society of Financial Services Professionals. The Society is a multi-disciplinary organization made up of financial professionals from accounting, insurance, investments, and law. Bret is also a member of the Financial Planning Association.

Kyle Sanders, CMT Photo

Kyle Sanders, CMT

Chief Investment Strategist, Portfolio Manager
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Kyle Sanders, CMT

Chief Investment Strategist, Portfolio Manager

Since joining Mader Shannon in September of 2011, Kyle Sanders has worked in the capacity of Assistant Portfolio Manager, Investment Strategist and Equity Research Analyst.  He formed a keen interest in financial markets at a very young age and has fully committed himself to the portfolio management profession. 

In his time with Mader Shannon, Kyle has gained an appreciation for not just the mechanics behind the implementation of the Mader & Shannon Total Return Strategy, but also the client-centric approach that sets us apart. As Chief Investment Strategist and Portfolio Manager, Kyle is dedicated to advancing Mader Shannon’s mission of positive client outcomes and excellent risk management.

Prior to joining Mader Shannon, Kyle held positions in retail banking and commercial mortgaged backed security (CMBS) servicing.  He attended The University of Missouri-Kansas City where he attained dual degrees; Bachelor of Science - Accounting and Bachelor of Business Administration - Finance. During his time at UMKC, Kyle served in both leadership and liaison roles in various student and alumni organizations.

Kyle is continuing his education by actively pursuing the Chartered Financial Analyst (CFA) and Chartered Market Technician (CMT) designations.  Kyle is registered with the Securities and Exchange Commission as an Investment Advisor Representative.

Austin Harrison, CFA Photo

Austin Harrison, CFA

Investment Strategist, Equity Research Analyst
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Austin Harrison, CFA

Investment Strategist, Equity Research Analyst

Austin Harrison began his professional career at Mader & Shannon in 2015 and now serves in the capacity of Investment Strategist and Equity Research Analyst. As a member of the portfolio management team, his role includes the research and analysis of publicly traded securities and their related economic trends, from both fundamental and technical perspectives. He also performs various account management functions within the firm.

In 2015, Austin graduated with honors from Benedictine College, where he earned degrees in both Finance and Accounting. While in attendance, Austin played four years of varsity baseball as a scholarship athlete and served as the team's representative to the Student-Athlete Advisement Council. 

Austin is a Chartered Financial Analyst® (CFA) charterholder. The CFA designation is a globally recognized, graduate-level credential that provides the strongest foundation in advanced investment, analysis, and real-world portfolio management skills. It is the highest distinction in the investment management profession. Austin is dedicated to developing his knowledge and understanding of ever-changing financial markets and enjoys the challenges this profession presents. To further continue his education, he is actively pursuing the Chartered Market Technician® (CMT) designation. He is also registered with the Securities and Exchange Commission as an Investment Advisor Representative.

CFA® and Chartered Financial Analyst® are registered trademarks owned by CFA Institute. CMT® and Chartered Market Technician® are registered trademarks owned by CMT Institute.

Taylor Madeira Photo

Taylor Madeira

Paraplanner, Client Services Coordinator
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Taylor Madeira

Paraplanner & Client Services Coordinator

In April 2016, Taylor Madeira joined Mader & Shannon as the Client Services Coordinator. Taylor oversees client relationships for Mader & Shannon, expertly guiding families and organizations through their engagements with the firm and continuously delivering upon our commitment to serving the best interests of our clients. She also plays an integral part in Mader & Shannon’s financial planning processes including gathering client data and building retirement projections. {due diligence, facilitating comprehensive, rigorous assessments of clients’ existing financial advisors.}

Taylor graduated from The University of Kansas with a Bachelor of Science degree in Business Administration. Taylor is also a member of the Financial Planning Association.

Portfolio Management

At Kansas City's Mader & Shannon we define value in portfolio management as achieving yield and growth objectives with as little risk as possible while minimizing transaction costs and taxes. 

The goal of active portfolio management is to protect the client from major downtrends resulting from the collapse of an overvalued market, and still allow the investor the opportunity to participate fully in the growth in value and income that the equity markets have historically provided.

Active Money Management

History demonstrates that although stock prices move erratically on an hourly, daily, or weekly basis, market averages experience long term trends with respect to intrinsic value. Understanding the state of the markets with respect to this persistent trend of overvaluation or undervaluation is the primary key to implementing an effective active management investment strategy. 

The basic strategy of active money management is to reduce the risk associated with bull markets during periods of overvaluation, and to be opportunistic during bear markets that persist during periods of undervaluation. This combination enables clients to fully participate in the long-term capital growth the markets have historically provided. 

Active portfolio management does not conflict with the concepts of long term investing. Most of our clients are in fact long term investors dependent on income and growth from their portfolios. 

Take a tour of our Trading Room

Mader & Shannon Offers 529 College Savings Plan Management Through TDAmeritrade

 Mader & Shannon manages 529 College Savings plans on the TDAmeritrade platform. The plans are sponsored by the State of Nebraska and Union Bank & Trust Company serves as the Program Manager.

The benefits for our clients are as follows:

  • Mader & Shannon can continuously monitor the plans and make allocation changes periodically through primarily Vanguard funds (currently the IRS restricts changes to twice a year).
  • Tax parity laws in some states (including Missouri and Kansas) make the state tax deductions available even though the plan is in Nebraska.
  • Eligibility for tax-free withdrawals for qualified higher-education expenses applies to any nationally accredited school, not just those in Nebraska.


Contact Bret Guillaume at 816.751.0575 or bret@madershannon.com to open an account or transfer an existing 529 balance.
For more information on College Savings Plans visit www.collegesavings.org


At Mader and Shannon, we believe that an effectively implemented active management strategy can help clients achieve reliable upside participation while also providing excellent downside protection.  By dampening the volatile swings in the market, our strategy seeks to provide both a sustainable long-term rate of return as well as peace of mind to our clients.

Strategy & Daily Routine

We take a top-down approach to asset allocation and a bottom-up approach to security selection. We monitor global economic indicators like GDP, employment, wage growth and a host of survey data to determine overall economic health.  Interest rates, currency dynamics, and inflation are direct inputs to the valuation of markets, and must be incorporated to a comprehensive global evaluation. Finally, an appraisal of the fundamental health of broad indices like the S&P 500 aids in our assessment about the overvalued or undervalued state of markets.

From that baseline, we select securities that we believe provide the best risk-reward opportunity in the current economic environment. We seek to invest in companies that have good fundamental prospects and are, in our opinion, undervalued. Company-level research centers around earnings and revenue growth, valuation multiples, cash flows, and balance sheet health. Our investment universe consists only of highly liquid, exchange-traded securities.

Because we are an active manager, our outlook and positioning are flexible and dynamic. The only responsible way to make investment decisions is to base them on the most up-to-date and accurate information available. Our task each day is to gather market-related news and data, use it to develop an investment thesis, and then decide whether our current portfolio is ideally suited to perform in a given market environment. Such a task requires discipline, and over the years we’ve developed a daily routine that helps us accumulate and digest an unrelenting supply of information.

The Kansas City Trading Room opens an hour and a half before the US exchanges each morning. By that time, we are already up to date on the developments in Asian markets overnight, how the European markets are trading, and where the U.S. indices are expected to open.

Our first task on site is to download the previous day’s transaction and position data from our custodian. Once imported into our portfolio management accounting platform, we can generate performance and view holdings at the firm, strategy, and client levels.  The integration of the accounting platform with our Bloomberg and Level-2 quoting systems allows us to aggregate our discretionary assets and constantly monitor them on a tick-by-tick basis, each and every day.

By 8:00, our portfolio management team has scanned our various research platforms for developments on current or prospective holdings.  We then discuss our findings and develop our expectations for the coming trading session. If any team member believes a portfolio change is needed, that too is discussed, and before the opening bell rings, we have a plan for the day. From the opening bell, until the market closes at 3:00, the Trading Room constantly monitors holdings and the markets, regularly meeting throughout the day to discuss ideas and potential adjustments. 

The Mader & Shannon trading room operation is an intense environment staffed by dedicated professionals who relish the daily opportunity to help clients achieve their financial goals. 

As a wholly transparent money manager, we regularly host current and prospective clients in the trading room for market reviews and strategy orientations.

Wealth Management

Simply put, wealth management is the process of a team of experts providing the highest quality of financial products and services to improve the financial health of client.  In other words, it is the delivery of a full range of services tailored to solve for a specific financial objective or goal.

Wealth management incorporates a full suite of services that include financial planning, portfolio management, tax services, retirement planning, and estate planning. This provides a holistic approach allowing each scenario to be analyzed from every angle to achieve a successful outcome.

Typically, a wealth manager acts in a consultative manner and is focused solely on the client’s behalf. A wealth manager should be a fiduciary, working only with the client’s best interest in mind. Upholding the standard of a fiduciary in the financial service industry must include putting a clients’ interests before your own, acting in good faith and providing all relevant facts to clients, remaining free of conflicts of interest, and ensuring the accuracy of advice given.

Accomplished wealth managers should also hold credentials within the industry such as Certified Financial Planner (CFP®), Chartered Life Underwriter (CLU®), and Charter Financial Analyst (CFA®). The criteria that one must meet to hold these designations demonstrates not only their competency but their commitment in that respective field.

Here at Mader Shannon, we believe it is crucial to understand our clients and what is important to them. The services we provide are structured around our client’s investment objectives and tolerance for risk. We take the time to not only identify but understand our client’s aspirations. We then analyze the information and engage other professionals when appropriate to develop suitable recommendations. Our work is far more comprehensive than simply providing investment advice.

Our services are designed to offer objective advice and set reasonable expectations. We educate our clients on the suitability of our financial solutions, carefully exploring risk and performance expectations.

Typically, when a wealth manager acts in a consultative manner and is focused solely on the client’s behalf they are considered a fiduciary financial advisor. A fiduciary is a person or legal entity that has the power and responsibility of acting for another in situations requiring total trust, good faith and honesty.

Acting as a fiduciary has a very important meaning within the financial services industry. Much has been debated and written as the industry struggles with a self-imposed standard of care. It is often assumed that when choosing a financial advisor, they are all required to do what’s in the client’s best interest, but that is not the case. There are those that are held to a higher standard, and those that are not.

A fiduciary financial advisor is an investment professional who is licensed with the SEC or a state regulator and who are legally required to put their clients’ interests before their own. Having a fiduciary duty to your client should eliminate conflicts of interest and theoretically make a fiduciary’s advice more trustworthy. It is Mader Shannon’s obligation to uphold this standard as an SEC registered RIA (Registered Investment Advisor).

In addition to regulatory bodies requiring a higher standard of care, all the principals at Mader Shannon hold designations that, within their Code of Ethics, require that they adhere to or go beyond the fiduciary standard of care. Fiduciary financial advisor’s often hold credentials within the industry such as Certified Financial Planner (CFP®), Chartered Life Underwriter (CLU®), and Charter Financial Analyst (CFA®) all in which require that professionals act within this standard.

The luxury of being able to maintain our independence translates into a better relationship with our clients. Being able to think and act strategically in the interest of clients and not beholden to a parent company allows Mader Shannon to offer a more fiduciary centric service. Being a fiduciary financial advisor affords our clients a higher level of transparency in the way we provide our service, and perhaps more importantly, in how we are compensated for our service.

The following articles provide additional information on fiduciary standards within the industry as well as questions to ask and things to look for when choosing a financial advisor.

        From U.S. News and World Report:


        From CNBC:



Retaining an independent financial professional is as important for planning as it is for asset management. Mader Shannon has no commitment to any product or service that will in any way conflict with the best interests of our clients.

Our services are designed to offer objective advice and set reasonable expectations. We take the time to educate clients on suitable financial solutions, carefully exploring risk and performance expectations

Our Planning Services

We provide the following services for helping clients achieve their financial goals:

  • Comprehensive Financial Planning
  • Asset Management
  • Complete Portfolio Analysis/Review
  • Pension Plans
  • Company 401k Plans
  • 529 and Education IRAs
  • Qualified Plan Rollovers
  • Retirement Cash Flow Planning and Projections


Society of Financial Service Professionals Member

Financial Planning Association (FPA) affiliation

Why an Independent Agent?

There are two types of licensed agents in the life and health insurance industry: a “captive agent” representing one company and an “independent agent” representing multiple companies. Independent agents are also commonly referred to as “brokers”.   Captive agents are limited to the products offered by their company while independent agents can select from countless products to fit a clients needs. Obviously, an independent agent is most often going to offer more suitable solutions.  

In addition to a professionals independent status, it is important the representive be licensed to offer advice on securities, tax planning, estate planning, to tailor the most suitable solutions.   This becomes important for two reasons. Any good financial plan starts with a careful assessment of a person’s objectives, income, assets, and potential inheritance. Unfortunately most insurance agents are not licensed, trained, or qualified to do financial planning, instead they are trained to be transaction driven for commissions rather than driven by the customer's best interest.   Sales activity, with little regard for suitability and actual customer objectives, is counter productive and gives the industry a bad name.

A true independent financial planner must be licensed and have advanced training in many disciplines. Unfortunately, most insurance agents/financial advisors are only licensed to sell insurance, annuities, and mutual funds. Such limitation would make comprehensive planning difficult and expensive compared to a more comprehensive approach by an independent financial planner who works in a fiduciary capacity, or solely in the clients best interest. Such a professional is focused on plan design, researching suitable solutions, and performance, versus being product and transaction driven.

Mader & Shannon Wealth Management has always worked as a fiduciary putting our client’s needs first at all times.

Life Insurance As An Asset and/or Retirement Supplement?

In the current environment of low interest rates and bond yields one might ask, “How about life insurance as safe money investment?” For 99% of the 800 plus insurance companies a reliable investment return is not likely. However, a few top rated companies have produced internal rates of return (IRR) in the plus 2% range ten years out and plus 3% range 20 years out.

These returns won’t compete with the S&P 500, but keep in mind, there is a death benefit value permanently attached to this investment. Therefore, one can own a life insurance contract that is an asset as a conservative investment and at the same time provide a significant death benefit. In addition, properly managed, this asset can work favorably as a supplement to retirement.  

To sustain a suitable outcome using this strategy working with a professional independent agent is a necessity for a number of reasons. Insurance policies are long term, complex legal contracts with both guaranteed and non-guaranteed provisions which you would want fully disclosed and understood. You must pick an insurance company that has the financial strength and history of supporting a contract of this type. In addition, you want to thoroughly understand the taxation of life insurance proceeds since the are different from other investments.  

Like most successful investments, this investment requires management by a knowledgeable owner and a qualified professional. In this case, an insurance professional and a qualified investment advisor should be utilized for the life of the contract. To summarize, a well designed and managed life insurance contract, issued by a top rated company, can serve as key building block to a sound financial plan.

Types of Insurance

Term Insurance vs. Permanent

There are two basic forms of life insurance, term and permanent policies. Each one breaks down into subcategories based on different options designed to meet the needs of the consumer.

Term Life Insurance

As the name implies, term life insurance is issued for a specific period of time from one year to age 100. The purpose of term insurance is to cover a need within the issue period such as protecting an income stream while raising a family, or to pay off a mortgage or business debt in the event of an untimely death. Some term insurance policies offer a guaranteed conversion feature. This policy provision guarantees that the policy owner can convert the policy to a permanent insurance policy at the same underwriting status as assigned to the term policy. Consequently, term insurance can be utilized to fulfill a current insurance need at a low cost until the need for insurance diminishes or cash flow is available for permanent insurance.

Permanent Life Insurance

Permanent life insurance is designed and priced to pay a death benefit or be surrendered for the cash value when the insurance is no longer needed. There are three types of permanent life insurance: whole life, universal, and variable universal life.

Whole Life is the oldest of these policy types. It features guaranteed minimum premiums, guaranteed minimum interest rates credited to the cash value, and guaranteed death benefits payable at death. Whole life issued by a top rated company can still be a very good value even though it is not as flexible as the more recent policy types.

Universal Life

This policy type is a product of the computer age and is often referred to as Flexible Premium Adjustable Life. Due to the capacity of computers to conduct and maintain countless calculations, actuaries are able to expose the moving parts in a life insurance policy. Interest crediting rates, mortality costs, even expenses and premium taxes can be illustrated with ease. This allows for flexible premiums and face amounts, along with interest rates that reflect current portfolio yields. For the first time, policies could be designed to better fit changes in insurance needs and family budgets.

Universal life policies illustrate two interest rates, the “guaranteed minimum” and the “current” rate. The “minimum” is a contract guarantee while the “current” is credited as a product of the insurance company’s return on assets. The current rate is the basis for the “projected benefit” column in the illustration. It is important to understand that the cash values of the whole life and universal policies are invested as a general asset of the insurance company until surrendered or paid as a death benefit, therefore the financial strength of the company is very impotant.

Today the most popular feature of universal life is the guaranteed death benefit feature. Although this feature is only available from a handful of the strongest companies, it provides the lowest cost guaranteed benefit ever offered in a permanent life insurance policy. In addition, these guarantees can be structured for varying life expectancies.

Variable Life and Variable Universal Life

Variable policy cash values are not an asset of the insurance company and are managed as a separate asset in select funds much the same as a 401(k) portfolio is self managed. Although the insurance company is the custodian of the funds, the policy values are segregated from the general assets of the company and not subject to their creditors in the event of insolvency.

There is a critical difference however from managing a 401(k) allocation versus a variable life allocation. Variable Life policies have significantly higher expenses due to monthly insurance costs. As a general rule, monthly expenses of 2% to 4% or more are charged for insurance and administration costs. Consequently, a 10% return for 401(k) allocation could net one-half that in a VUL policy with a similar allocation. As a result, asset management is more difficult with variable policies than a typical 401(k) or an IRA. We recommend two rules of thumb for successful VUL ownership:

First, over fund the policy in the early years to maximize tax free growth inside the policy. Second, manage the portfolio as a sophisticated investor or retain a professional asset manager to assist you.

The obvious benefit of variable universal life is that assets can be grown in a most favorable tax environment, which, if successful, can reduce long term insurance costs or grow the tax free death benefit to larger amount than the original amount. However, there are no guarantees and the margin for investment failure is narrow. One must weigh the risk of investment results in variable life policy against the guarantees offered by competitive universal life policies.

How Much Insurance Do I Really Need?

In the vast array of information regarding life insurance there seems to be no one consistent way of determining how much you need. We believe client's should take part in determining what's necessary and understand the process rather than rely on internet 'calculators'. The following article was written by Brian P. Daley CLU. It was published in the Society of Financial Service Professionals' Life, Health & Disability newsletter, of which Mr. Daley is the editor.

Four Simple Steps

Step One

Determine the amount of annual after-tax income your survivors will require to maintain their current standard of living if you were to die today.

Step Two

Subtract from that amount the annual after-tax income earned by your surviving spouse if your spouse plans to work outside of the home if you were to die today. The difference is the family's annual shortfall.

Step Three

Divide the family's annual shortfall by 5 percent, as we assume that over the long term your survivors will be able to earn somewhere around 5 percent net after income taxes, transaction costs, and management fees on whatever cash they have available for investment after your death. (One may select 3 percent, 4 percent, or even 7 percent for that matter, but 5 percent is generally fair).

The resulting figure is the approximate amount of cash required, from whatever sources, at the time of your death to provide sufficient annual income without invading the principal until the eldest child is ready to begin college.

Step Four

Adjust this amount to reflect your unique and specific circumstances.

For example:

Will the surviving spouse's career plans or income needs change significantly following your death?

Will your spouse be receiving any imminent inheritance or income from elderly parents or from another source?

Are the children's education costs already fully funded, or are they beyond school age? Is there a special needs child who will require lifetime care?

What is the likelihood and what are the probable financial consequences of remarriage?

How long will it be until the surviving spouse will have access to tax-qualified monies such as 401(k) assets?

Such factors can increase or decrease survivor's dependency upon income from the estate and, therefore, are appropriate for you to consider when estimating the amount of coverage required by your survivors.

An Example: Assume a survivor will require $100,000 of annual after-tax income and that the spouse does not work outside the home. Dividing $100,000 by 5% equals $2 million. Thus a principal of $2 million would be required to generate uninterrupted annual after-tax income of $100,000. Depending upon your age and circumstances, the principal might be comprised of qualified and/or non-qualified investments, partnership capital, trust funds, and any current group or personal life insurance proceeds. The difference, if any, between the $2 million and the total of these other monies is the amount that may be necessary to make up through the purchase of new individual life insurance.

Portfolio Management Newsletters

First Quarter 2020 Market Update

Given our lack of medical training and the pervasive news coverage focused on the health crisis, this note will not focus on medical developments or infection statistics.  If you’re looking for more of that type of coverage, we’d be happy to point you in the direction of some of the most influential and informed voices we’re following. 

Instead of the health crisis, this newsletter will concentrate on the current economic predicament we find ourselves in.  We’ll be looking into the technical ramifications influencing markets and the fundamental realities that companies are facing. 

In case you’re not going to read through the entire newsletter, let me spoil the ending: everybody is flying blind right now.  Whether you’re amongst the scores of newly unemployed, a business manager trying to balance the books, or an economist trying to forecast GDP, there is little doubt that we’re all trying to grapple with an unclear picture of the future.  This pervasive uncertainty is typical of recessionary periods and tends to resolve with time and persistence.  We don’t expect this recession and recovery to be any different.

As an active manager, we feel exceptionally well suited for this moment.  The environment is completely without precedent - but this is not the first time our management style has met an unprecedented challenge.  We’re confident that throughout this recovery and rebuilding phase, we can continue to offer both peace of mind, as well as excellent risk-adjusted returns.

As always, we’re here if you have any questions,


Crisis Response – Fiscal and Monetary

Fiscal – Congress

After a wholly disappointing and inadequate response to the 2008-2009 great financial crisis, Congress took up arms against the Coronavirus Crisis with breathtaking speed and force.  In many ways, the memory of the lackluster economic recovery post-financial crisis likely influenced this rapid response. 

A great deal of information is widely available about the finer points on the CARES Act and attached supplemental bills, so in this section, we will briefly summarize the objectives of the programs.  The program(s) had three main goals: get cash directly to every man, woman, and child (‘money in the mail’), provide grant money to small businesses (paycheck protection program or PPP), and loosen a sweeping list of regulations and restrictions that would allow for more liquidity in the financial system.  When you consider that these bi-partisan programs were dreamed up and implemented during about two months, it is tough to say that they have been anything but successful. 

So far, the total fiscal response to the coronavirus crisis has totaled about $2.8 trillion.  For some perspective, let’s look at a few other notable periods of fiscal spending in our nation’s history:

  • The US Interstate Highway System was put into motion by President Eisenhower in 1956, and cost about $521 billion in today’s dollars.
  • The much-revered Marshall Plan to rebuild Western Europe after WWII is estimated to have cost about $128 billion (although there were follow-up bills that allowed for additional spending to support our military allies abroad).    
  • Last, but certainly not least - according to the Congressional Research Service, the total inflation-adjusted costs of WWII attributable to the US Government were $4.1 trillion.

Any way you slice it, the programs implemented by Congress over the past ten weeks are massive and without compare.  And it is very likely that more will need to be done.  For now, the potential routes include infrastructure spending, additional rounds of ‘money in the mail’ and/or PPP, supplemental aid to States, or potentially something even more creative that has yet to be brought into the public debate. Whatever the program might be, it will likely bring an additional $1-2 trillion in spending.  All told, our total fiscal response to this crisis may meet or exceed that of our experience in WWII.

Monetary – Federal Reserve

Just as the Congress rapidly responded to the fiscal needs of the country, the Federal Reserve acted with great urgency.  Since the epicenter of the great financial crisis was securely within the Federal Reserve’s jurisdiction, they were both quick and creative with their programs.  That speed and imagination likely averted a depression – a reality that almost certainly drove their methods of response in this crisis.

Again, due to the breadth and complexity of the monetary policy response (both here and abroad), I will not review each program individually, but instead provide a summary of the intent behind the actions, as well as some perspective on how unprecedented the policies truly are.

A quick primer: Central banks typically have two objectives (although they change from time to time): facilitate full employment and keep prices/inflation stable.  Some might also add “don’t let financial markets cease to function” to this list.  To achieve these two (three) goals, central banks have three main tools: a policy interest rate that they can raise or lower, a balance sheet that they can use for outright purchases or sales of securities, and finally there is a litany of what we will call liquidity facilities/policies that help make sure the plumbing of the financial system operates as intended.  Let’s take a look at how our Fed has acted on each of these three fronts:

On the policy rate side, the Fed came out swinging – first, they did an intermeeting cut on March 3rd of half of one percent (50 basis points).  An intermeeting cut is not without precedent, but in the over 100-year history of the Fed, it has only happened eight times (1994, 1998, 3x in 2001, 2007, 2x in 2008).  Their final rate cut took interest rates to zero and was the first such cut to 0.00-0.25% since the financial crisis.  Chart on Fed Funds (policy rate) below.

The balance sheet policy response has been substantially more dramatic than that of rate policy.  Through two separate pronouncements, the Fed informed markets that they would effectively buy as many treasury and mortgage-backed securities as required to achieve their mandates.  This open-ended policy differs materially from past quantitative easing (QE) programs which included details about both the pace and duration of purchases.  Previously, the most aggressive pace of QE occurred in the third and final round (QE3).  At its peak, QE3 allowed for $45 billion in monthly purchases of treasury securities.

Since this new quantitative easing program began, it has averaged $43.7 billion in purchases PER DAY!

Suffice it to say, the Fed is fully committed to supporting the treasury market.  They’re also committed to supporting the mortgage market, corporate debt markets, and even select consumer debt markets.  The $1.4 trillion in purchases mentioned above only includes US Treasury securities, the total balance sheet expansion since the Fed began these programs is $2.4 trillion!

The ‘liquidity and other provisions’ portion of the toolbox is the broadest and arguably the most integral to an orderly financial system.  The complexity of these programs also makes them a bit boring, but the good news is they almost always have an associated acronym.  In the heart of the mid-March panic, it felt like a new program was announced every single day.  Here is a brief run-down of the policies enacted so far:

  • Primary Dealer Credit Facility (PDCF) – Lending to securities firms at .25% for 90 days to keep markets credit markets functioning
  • Money Market Mutual Fund Liquidity Facility (MMLF) – provides liquidity to money market funds facing a cash crunch
  • Repo Operations – These began in late 2019, and were quickly ramped up to as much as $1T in overnight repurchase operations aimed at providing access to cash and defending their policy rate
  • Total Loss Absorbing Capital Requirement Relaxation (TLAC) – relaxing capital requirements for banks to encourage lending
  • Primary Market Corporate Credit Facility (PMCCF) – Direct lending to corporations, with restrictive terms on buybacks and dividends
  • Secondary Market Corporate Credit Facility (SMCCF) – Allows for the direct purchase of investment-grade corporate bonds, and exchange-traded funds
  • Commercial Paper Funding Facility (CPFF) – Allows for the purchase of commercial paper and municipal bonds
  • Term Asset-Backed Securities Loan Facility (TALF) – Allows for the purchase of asset-backed loans that are collateralized by consumer loans (student loans, auto loans, and credit cards)
  • Municipal Liquidity Facility – Direct lending to state and local governments
  • International Dollar Swap Lines – these facilities allow foreign central banks to put up collateral in exchange for US dollars.  They are standing facilities with our allies, but they’ve now been expanded to effectively every other central bank except for China.

The Main St. and municipal lending facilities were included in the list above even though they are very clearly an entirely separate and new avenue of Fed policy.  More news is forthcoming on those programs as they roll out in the coming weeks and months.

We hope this review of the fiscal and monetary actions to the crisis was a helpful summary of the unprecedented response.  If you would like to discuss any of the programs or the policy outlook(s), please let me know.  For now, the Fed and fiscal authorities intend to do whatever it takes to keep our financial system functioning.  The consequences of their actions will be debated from now until eternity, but the simple truth is that doing nothing would have had catastrophic results.


Earnings and The Economy

Most statements about the condition of the economy these days conclude with ‘… the most ever’ or ‘… the lowest ever.’  So, you may find it odd that we don’t have a single one of these ‘unprecedented’ data sets in our newsletter this quarter.  Why?  Well, to be blunt, macroeconomic data right now is as shocking as it is useless. Until the shutdowns ease broadly, the data is telling us something we already know; the economy is closed for business.  As rates of change and trends materialize, the data will be extremely descriptive of what the recovery may look like, but unfortunately, that will take time.

So instead of presenting a detailed analysis of unemployment claims or retail sales, we will focus this section on the qualitative nature of corporate earnings season. 

During earnings season, we typically get information about the recently ended quarter, color about operational initiatives/challenges, and generally some form of guidance about what the next quarter or year might look. 

Luckily for us, the end of the first quarter just so happens to have overlapped with the most significant disruption to global business in modern history.  This fact makes the results from the previous quarter and the guidance on future quarters less meaningful than normal.  But management’s qualitative discussion of operations and stake-holder behavior has become an incredibly valuable piece of information.  Here are a few excerpts from earnings releases and conference calls that highlight the most relevant emerging themes.

  • Omnicom Group (OMC): While we expect the pandemic to affect substantially all of our clients, certain industry sectors have been affected more immediately and more significantly than others, including travel, lodging and entertainment, energy and oil and gas, nonessential retail and automotive. Clients in these industries have already acted to cut costs, including postponing or reducing marketing communication expenditures. While certain industries such as healthcare and pharmaceuticals, technology and telecommunications, financial services and consumer products have fared relatively well to date, conditions are volatile and economic uncertainty cuts across all clients, industries and geographies. Overall, while we have a diversified portfolio of service offerings, clients and geographies, demand for our services can be expected to decline as marketers reduce expenditures in the short-term due to the uncertain impact of the pandemic on the global economy
  • Alphabet (GOOGL): For our advertising business, the first two months of the quarter were strong. In March, we experienced a significant and sudden slowdown in ad revenues. The timing of the slowdown correlated to the locations and sectors impacted by the virus and related shutdown orders.
  • Target (TGT): Month-to-date in March, overall comparable sales are more than 20 percent above last year, with comparable sales in Essentials and Food & Beverage up more than 50 percent. During that same period, comparable sales in Apparel & Accessories are down more than 20 percent compared with last year.
  • McDonald’s (MCD): In China, approximately 25% of restaurants were closed in early February. By the end of March, substantially all restaurants had reopened. However, the market continues to experience a reduced level of demand as consumers have not fully return to their pre-COVID routines resulting in negative comp sales since the initial outbreak in late January. Comp sales were down over 20% in the first quarter and trends have improved in April to negative mid-teens.
  • Caterpillar (CAT): In April, we raised $2 billion of incremental cash by issuing new 10 and 30-year bonds and arranged $8 billion of additional backup facilities to supplement the Company's liquidity position. We've reduced discretionary expenses, including consulting, travel and entertainment. We suspended 2020 based salary increases and short-term incentive compensation plans for most salary management employees and all senior executives.
  • Caterpillar (CAT): I don't anticipate a permanent impairment in our business. The old -- I believe it is my 5th I think oil cycle in my 40-year career and when things are really good people think it will never get worse again and when things are really bad they think it will never get better
  • Honeywell (HON): Starting with Aerospace, we expect more than a 50% decrease in global air transport flight hours and more than a 40% decrease in global business aviation flight hours in the second quarter based on industry sources, which will significantly impact our commercial aftermarket businesses
  • YUM! Brands (YUM): I really do think the few months that we're in the middle of right now are accelerating a lot of trends in the business that would have taken years to take hold like digital order and pay and things like and delivering technology and all the stuff that everybody is talking about
  • American Airlines (AAL): Never before has our airline, or our industry, faced such a significant challenge.
  • Cummins (CMI) On the supply chain side, we've been dealing with disruption in the supply chain really since China shutdown in early February. I think our global network has proved very valuable to us in that we've been able to move production around and we've been able to mitigate a large number of issues. 
  • Warren Buffet: ‘Never, ever bet against America’

Aside from operational challenges/opportunities, the most prolific trend is the massive expansion of corporate credit.  Since the beginning of the crisis, companies have tapped revolving credit lines and issued a flurry of new debt.  Commercial and Industrial loans have skyrocketed from $2.2T to $3T in about two months!  For some perspective, that $800 billion increase is the same magnitude of expansion that was experienced over the 5-year period from 2014-2019.

While debt is undoubtedly a stigmatized area of finance, there is a definite silver lining in the fact that companies were actually able to get their hands on cash.  By making it so that essentially any company could get access to very low rates, the Fed took the wide-spread bankruptcy scenario off the table (for now).

No one can be sure what the world will look like six months or a year from now.  Certain companies will likely be so fundamentally changed that they cease to exist in their current form.  Others will be in a place to opportunistically emerge stronger than ever.  The question we must grapple with as investors is to what degree will the carnage of the failed companies impact the path of the survivors.  Our economy is so intricately intertwined that we find it difficult to think that any one sector can operate to its fullest potential while others are in calamitous decline.  Our most important assessment going forward will be the degree to which capex cuts and layoffs impact the consumer’s propensity and ability to spend. 

Energy Markets

In normal times, the drama in the energy markets would dominate the news.  Plenty of news coverage has been initiated, but the magnitude of the declines and the knock-on effects to other areas of the economy are yet to be fully understood.  In this section, we’ll briefly review the supply and demand dynamics that are currently wreaking havoc in our energy industry. 


While the shale revolution has been an unquestioned success for consumers, it has been a source of major volatility for the energy industry.  The expansion of horizontal drilling caused a boom in the late 2000’s and early 2010’s that has since met an abrupt bust.  That bust has largely been due to the unbelievable output growth derived from the technology. 

You’ll note that output fell in tandem with the oil price collapse as the period of oversupply began in early 2014. 

During that short-lived contraction, only the least viable wells were shuttered, while the most productive wells continued to gush.  Those productive wells have outperformed, and despite the pull-back in capital spending, US production reached new records in the final months of 2019.

On March 8th, the Saudis and Russians added insult to injury on the supply side of the ledger by initiating a price-war.  They played chicken for about a month, drove the price substantially lower, and have now declared a fragile truce.  With so many countries and companies desperately reliant on continuing to produce oil, an easy fix is likely difficult on the supply side.  


As the economic realities of the coronavirus crisis set in, it became clear that substantially less energy would be consumed for a period.  By many estimates, this shut-down phase has meant a 90% decline in airline traffic and a 60% decline in miles driven.  The question now is what does a bounce back look like, and if the market was oversupplied when global activity was humming, what does an oversupplied market look like if activity resumes at 60%, 70%, or even 90% of its former peak?

Politics (briefly)

It seems like an almost absurd reality that we are only 6 months away from a presidential election.  We plan on covering the election and the potential market/economic implications in later newsletters but couldn’t help throwing this interesting chart of consumer comfort into the mix. 

Before the crisis, democrats and republicans were living in totally different worlds (no surprise there).  But the prevalence of COVID-19 in largely blue jurisdictions has taken consumer comfort for democrats to new lows.  Republicans, on the other hand, remain about as confident as they did shortly after the election of Donald Trump. 

In normal times, measures of consumer comfort/confidence are direct feed-ins to economic expectations.  But as we inch closer and closer to the election (November 3rd), these gauges will become critical.  It is no secret that weak reads of consumer measures typically lead to a shift in the incumbent party.  I’m sure the political strategists advising these campaigns are entirely aware that no president (or his party) has ever survived an election that occurred in a recessionary year.  Will an exogenous shock-induced recession be a different story?

Technical Review


The market remains in a multi-year consolidation.  Since bottoming on 3/23, we’ve re-entered the range between 2200 and 2900.  We expect to live in this range for a significant period as the damage from the crash is repaired.  Mega-cap stocks have bounced the most and are masking broad weakness within the index.  As of 5/4, the median stock had recovered about 39% of their peak to trough decline, while the market had recovered 52%.  Most of this weakness is centered in cyclical areas that are typically associated with value and small market capitalization. 


While the crash in March took the stock market down the hardest, it didn’t spare other areas typically associated with safety/income such as investment-grade bonds, municipal bonds, real estate investment trusts (REIT), and gold.  This ‘dash for dollars’ was quickly alleviated by monetary policy actions, and these areas have since snapped back to varying degrees. 

The positive narrative for gold remains anchored in the nature of the fiscal/monetary policies we’ve embraced.  These policies tend to cause investor anxiety and asset price inflation.  The risk for gold right now is that we’re experiencing the technical phenomenon of a crowded trade.  This has caused and probably will continue to cause rapid fluctuations in the day to day and week to week price action.  Longer term, the set-up still looks favorable, although there is stout resistance between $1,600-$1,900.



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