French 50-year bonds? Puerto Rican debt? Dangers of reaching for higher yields

- Kent Kramer, CFP, AIF, is chief investment officer/lead adviser at Foster Group.

In mid-May, a quick review of the Wall Street Journal revealed the average yield on a five-year CD was 1.26% and the 10-year U.S. Treasury note was yielding 1.85%.

These low rates can lead investors to seek higher returns in other places. Two especially popular ones are longer-term bonds and high-yield bonds. While there may be a place for these in your portfolio, the age-old warning “caveat emptor,” or buyer beware, bears repeating, and here’s why.

As investors, we all want higher returns, but we also want less risk. How you balance your pursuit of these preferences will go a long way toward achieving your unique definition of a successful investing experience.

If the purpose of bonds in your portfolio is primarily to provide stability and reduce risk, then high-quality, short-term bonds make the most sense. However, as mentioned above, currently these bonds provide small returns. There are other kinds of bonds with higher current interest rates, including very long-term bonds and lower quality, “high-yield” (aka “junk”) bonds. Both are also higher risk in terms of potential price variation prior to maturity.

Bond prices move in the opposite direction of interest rates. So if the Federal Reserve does influence a rise in interest rates (someday!), the price of an investor’s bonds, all other things being equal, will decline. The longer term the bond, the greater the price variation. A graphic in the Wall Street Journal on May 19, 2016, illustrated the potential price declines of high-quality government bonds of differing maturities.

The graphic reveals how a 1% increase in interest rates causes the price of a U.S. 10-year Treasury bond to decline by 9%, while the price of a French 50-year bond would decline by 27%. The effective annual yield of the French 50-year bond is currently under 3.25%. Is an additional 1.25% in current yield worth the increased risk of an 18% price decline (or more if rates rise by more than 1%) in the next 10 to 20 years?

Bond investors also reach for higher yield by purchasing lower quality bonds. Bond buyers set the actual market price and yields on bonds with similar maturity dates according to credit quality (the likelihood the issuer will make interest payments and repay in full on time). The higher the probability of default or late or restructured payments, the higher the interest rate demanded by bond buyers.

While investors may get a higher initial interest payment, the risk of these lower quality bonds, the expected total yield to maturity, is never fully realized. This would be the case if the bond defaults or pays later and/or in lower amounts. Puerto Rican bonds provide a current example of how this can happen.

In 2012, interest rates (yields) on Puerto Rican debt was about two percentage points higher than highly rated municipal bonds of similar maturity. Not only were the yields higher than bonds of similar maturity, but the interest paid by these bonds was, and is, exempt from federal, state and local income taxes, making them very attractive. Bond investors, some of whom thought bonds were inherently “safer” than stocks, took the higher yields offered by the Puerto Rican bonds even though the credit quality was lower.

Since that time, Puerto Rico has defaulted and will likely continue to restructure its payments. This has caused the price of some bonds to fall from par, or face value, of $10,000, to less than $7,000 (a 30% decline). Bonds with longer maturities have seen their prices fall even further.

The lesson for investors is that there really is still no such thing as a free lunch. Investments that offer or advertise higher returns invariably involve higher risk, whether they are stocks or bonds.

As an investor, you need to know what purpose you have for the bonds in your portfolio. If it is stability and the preservation of assets, then shorter term, higher quality bonds, CDs and cash are for you. If you are willing to accept more risk, longer-term, lower quality bonds may be attractive, but our view is as risk increases, a diversified stock portfolio may be the better investment for this portion of your portfolio.

PLEASE NOTE LIMITATIONS: Please see important disclosure information and the limitations of any ranking/recognitions, at www.fostergrp.com/disclosures. A copy of our current written disclosure statement as set forth on Part 2A of Form ADV is available at www.adviserinfo.sec.gov



Farmers markets: Good for the body and the economy

Jim Miller is executive director of the Historic Valley Junction Foundation, which owns and operates the Valley Junction Farmers Market. Contact him at director@valleyjunction.com.

The farmers market in Historic Valley Junction begins Thursday, May 5, and runs through Sept. 29. Our welcome center office has already been getting inquiries about it from fans and visitors.

Over the past two decades, the way we shop for our food has shifted dramatically, with an ever-increasing emphasis on local, organic and clean food.

According to the USDA, there were approximately 2,863 U.S. farmers markets in the year 2000. Today that number is nearly 8,500 – and growing. Of this total, Iowa has approximately 250 farmers markets, with 40 located in the central Iowa region.

According to Eat Greater Des Moines, within our region (Polk, Dallas, Marion and Warren counties) you can find a farmers market Monday-Saturday. We have over 26 markets taking place on a weekly basis, all selling a variety of locally grown produce, plants and flowers, breads and baked goods, meats, dairy, and value-added products.

It is impossible not to acknowledge the amazing growth and expansion of the local food movement. Events are held from corner to corner of this agricultural state, from a small town square with 10 vendors to larger cities like Valley Junction in West Des Moines and our 80-100 vendors each week. We’ve been operating our market since the mid-1970s and our current format since 1988.

I won't speak for all 8,500 farmers markets in the country, but I will speak for the one in Valley Junction (and I think for a good share of those 8,500). Farmers markets are good for the body, soul, community and economy. Fill your body with Iowan-grown produce, home-baked bread and baked goods, Iowa-raised chops and ice cream from an Iowa dairy operation. Fill your soul with one-of-a-kind creations from Iowa artisans and flowers from Iowa gardens.

These community events are family-friendly, most are pet-friendly, and in the case of Valley Junction, we also offer the best music around with our Music in the Junction concert series and optional adult beverages.

More and more Iowans want fresh local food, and also want a relationship with the grower. The significance of income from farmers markets in the world of food retailing should not be ignored.

According to the Farmers Market Coalition:

  • Growers selling locally create 13 full-time jobs per $1 million in revenue earned. Those that do not sell locally create three jobs per $1 million earned.
  • For every $100 spent at a farmers market, $62 stays in the local economy, and $99 stays in the state.
  • Nearly $19 million in SNAP benefits (food stamps) was spent at farmers markets in 2014. That's fresh food for lower-income Americans and increased revenue for local farmers. Markets bring fresh food to neighborhoods that need it the most.
  • Proximity to farmers markets is associated with lower body mass index. Walk or ride your bicycle to your favorite farmers market.
  • USDA reports that produce prices are lower, on average, than grocery store prices.
  • Shoppers have more than three times as many social and informational encounters at farmers markets than they do at national chain supermarkets.
  • In Iowa, every dollar spent at farmers markets led to an additional 58 cents to $1.36 in sales at other nearby businesses. This is perhaps the strongest response to the question, “Does a farmers market really help Valley Junction (or any community)?” Yes!

Here’s my parting shot: Do your civic duty and support the community around you. Supporting your community and supporting your local farmers market is simply the right thing to do. Grab your canvas bag, and I’ll see you soon at the market.

Nonprofit profile: Goodwill helps those with mental disabilities

- Susan Rathjen is vice president of Private Banking for Bankers Trust Co., Clive.

May is National Mental Health Awareness Month, and for me, that’s a personal subject. It may be for you, too.

My mother has schizophrenia. She is so much more than a medical diagnosis, and her disease does not define her. But, it has sparked my passion and my goal: to bring awareness to the community about mental health disorders.

One way I try to do that is through my work with Goodwill of Central Iowa.

I have served on Goodwill’s board of directors since 2013. I was drawn to Goodwill after I took a tour and learned about its Day Services program, which provides skills and social training to adults with a range of developmental disabilities and mental illnesses. I saw individuals being served in a very caring manner, which inspired me to volunteer at Goodwill client functions.

I have some experience with physical disability too, as my husband suffered a traumatic accident, which included a head injury, in 1997. As a result, he is unable to work. But, we chose to look at his accident as a blessing and an opportunity, because he’s been able to stay home with our kids. He is the rock star of our home!

I’ve enjoyed volunteering with Goodwill’s Day Services program. It’s so important for the clients to have that interaction. Whenever I volunteer, I am reflective, and it reminds me that there are great services out there -- and that my situation is not that bad.

Today, my mother has a great support network with help from my father and from Veterans Administration services. But, not every family finds help to cope with the barriers they face.

Because of the stigma associated with mental illness, many people are too ashamed or embarrassed to seek help for themselves or their loved ones.

Goodwill of Central Iowa is available to help.

Goodwill’s mission is to improve life for all by providing skills training and helping people with barriers to employment find jobs. What I have learned is that those barriers are not just mental and physical conditions, but they include disadvantaging conditions such as being an older worker, having a lack of child care or transportation, and gaps in work history.

Last year, Goodwill served more people and placed a record 914 people with 439 central Iowa employers. And those placements resulted in an estimated $49,750,000 boost to the local economy.

And, Goodwill’s e-waste program kept close to 5 million pounds of electronics out of the landfill.

Goodwill is so much more than a second-hand store. And it does so much more than simply hire people to work at its stores. Goodwill strives to bring out the best in people, to make a positive difference in the lives of people it serves and to have a positive impact in our community.

Want to volunteer with Goodwill so you can improve lives? Here are some ideas:

  1. Assist at client events by chaperoning, serving food and interacting with clients.
  2. Drive clients to and from social events.
  3. Sort donations, stock shelves, fill displays and clean in our stores.
  4. Help our Shopgoodwill online auction department by photographing or packaging items, or determining their value.
  5. Organize a donation drive at your school or business.

For more information, go to dmgoodwill.org

Susan Rathjen is vice president of Private Banking for Bankers Trust Co., Clive. She was named this year to the Business Record’s prestigious 40 Under 40 list. She has received the Bankers Trust Leadership Academy Peer Award, she volunteers for Joppa Outreach, a faith-based non-profit that helps homeless people, and she serves as the event coordinator at Eternity Church in Clive.

Advice to trade show exhibitors

- Cathy Erickson of Adel has planned events nationwide for clients and also owns Great Iowa Pet Expo and similar shows in Indianapolis and Kansas City.

Consumer trade shows offer an incredible way to market products, build brand awareness, promote your nonprofit and even build your business-to-business network. But as we recently learned in the Des Moines market, shows sometimes aren’t well-funded or well-managed.

(The Iowa Attorney General’s Office last week began investigating a women’s expo company that left vendors in a lurch after canceling events in Omaha and Des Moines. After the Better Business Bureau received numerous complaints from people who said they paid fees ranging from $100 to $350 to be a part of What Women Want Expos, the bureau issued an alert saying the owner of the expo company had gone out of business.)

I have a saying that those who work with me have heard often: “If producing events was easy and they always made money, everyone would just produce events!”

They aren’t easy, and they don’t always make money. But when shows are managed well, when the crowds are strong and sponsors want in, it looks like easy money. And that’s the problem. That’s when someone who has no real experience steps back and says, “Hey, I can do that too.”

Often they can’t. They dive head first into a money pit that can swallow them up and drag innocent exhibitors down with them. The good news is that if you’re a first-time exhibitor or an exhibitor who wants to try new trade shows, I can offer some tips for checking out the producer and the trade show before you ever spend a dime.

Be nosy: Ask for references and testimonials
That wizard might sound powerful and commanding, but what’s really behind the curtain? These days, anybody can create a nice website and promotional brochure. Has this group been successful in the past?

Ask for the contact information of people who have previously exhibited with this producer. That’s where the real dirt can be found. Established exhibitors usually have a calendar of events exposing them to many producers throughout the year, the good, the bad and the ugly, and they usually aren’t afraid to share their opinion. I never cease to be amazed by the stories my exhibitors tell me.

Ask about the crowds, if sales were strong, if they brought in talent. Are they easy to work with? Are they organized? Do they communicate well with their exhibitors? Can you find them during the event?

Research the company’s marketing and promotional plan
“We’re doing TV” could mean that there is a $20,000 ad buy in place, or it could mean that they are giving away a couple of tickets via the station’s website. Make it your business to know which one it is. I can’t tell you how many times exhibitors have told me about a new show they booked and no one showed up.

A seasoned pro will be able to tell you immediately what media outlets they are using and how they are using them to include contests, interviews and promotions.

Inexperienced event producers often don’t know how to budget for their event. They run into “unexpected” expenses, leaving no money left for advertising.

And beware a single media group (radio, TV, digital or print) that is only advertising a consumer trade show through its own outlet. Successful plans utilize a healthy mix of all outlets.

Study the show materials
Ask about the photos: Are they from their previous shows, or are they stock images? Is that the site where the show is now? Are those the vendors who have participated in prior years? It’s a red flag if their photos weren’t taken at their own show.

Are their statistics attributable? I don’t know why attendance of 10,000 is so magical, but we see it claimed over and over again. Ask how the attendance predictions are determined.

Ask if they will be posting the exhibitor list and when that usually happens. Ask if the talent is already booked. I’m amazed how some shows list appearances but when you get there you learn that the talent couldn’t make it. Most often, it means the producers couldn’t pay them.

Does the event have a Facebook page, a Constant Contact newsletter for exhibitors, Instagram or Twitter? It should.

Know your promoter
Look them up on LinkedIn or Facebook. Ask for personal references. I encourage you to ask for the contact information of exhibitors who can give a testimonial. Even producers of new events should have former exhibitors or vendors who can vouch for their credibility.

Ask if the producer does this full time. Can they be reached during regular working hours? Visit a show they produce and talk to the vendors. A simple “How is the show going?” will generally spark a conversation.
If the producer is not local, talk to the site manager to verify that the event even has a signed contract for space. You might be amazed.

Negotiate your contract for payment upon move-in
If everything is looking good but this is a first- or second-year event, try asking the producer if you can sign a contract but hold your payment until move-in. Then, if the show cancels, you don’t lose your booth fee.

Most exhibitors have a lot more invested than just the booth fee. Inventory, promotional items, hotel rooms, staff and travel costs all play into a trade show booth budget. By delaying your booth payment, you can at least protect that fee against fraud or mismanagement.

Trade show exhibiting is so much more than filling up a booth. The planning and execution is time-consuming and often expensive. When you’re adding a new show to the calendar, plan to dig down a little bit before writing that check! 


The facts about GMOs

- Joe Hrdlicka is the executive director of the Iowa Biotechnology Association

Be89b260-2114-4417-bb7a-c2140ba2cb17When I say the term, “GMO”, what do you think? Most people generally think negative thoughts when this term is spoken. Unfortunately, this happens because a vocal group of people would have you believe GMOs are really bad.

However, you have to question whether folks who speak badly of GMOs really know what they are criticizing. Let’s examine some facts. There have been thousands of studies on the safety of GMO foods. There have been a variety of organizations that have funded these studies, but most of the studies that come from reputable science organizations indicate GMO foods are safe.

There is very little to suggest from a science perspective that GMOs are unsafe in any way. The fact of the matter is we have been consuming GMO-based foods for years. GMOs have been utilized in a variety of ways going back many years. Agriculture has injected genetic mutations in crops all sorts of ways for a long time for a variety of purposes.

If it weren’t for a “cottage industry” of social media gurus, we probably wouldn’t be having much of a debate on this issue because the evidence just doesn’t back up to the claims. One of the most compelling studies came out in September of 2014, and it had billions of subjects that eat GMOs almost exclusively: livestock. The study was conducted by Dr. Alison Van Eenennaam at the University of California at Davis. Her study focused on the health of 100 billion animals and found no ill effects — in fact, no effects at all — attributable to a switch from non-GMO feed to GMO.

GMO-based foods are really derived out of consumer demand. For example, the consumer demand for fruits and vegetables grown in drought-stricken areas. Consumer demand for food products free of disease from weeds and insects. And consumer demand for more efficient growth of crops due to our population that is quickly rising above 9 billion people in a relatively short period of time.

Consumers are often led to believe “organic” food products are safer as well. The difference between organic, conventional and biotech is mainly the types of pesticides that are allowed to be used.

A common misconception is that organic food is produced without pesticides, but organic farming – just like conventional and biotech farming – has to deal with the challenge of eradicating pests. The pesticides in organic farming are generally derived from natural sources. For example, bacillus thuringiensis (Bt) may sound familiar because it's used in some genetically modified crops, but it's an all-natural bacteria. Bt is also commonly used in organic farming.

As far as organic foods are concerned, former U. S. Secretary of Agriculture Dan Glickman once summarized it well when an organic certification policy was being considered: “Let me be clear about one thing,” he said. “The organic label is a marketing tool.

It is not a statement about food safety. Nor is ‘organic’ a value judgment about nutrition or quality.” You may not agree with these media outlets all the time, but I find it interesting the Boston Globe and the Washington Post have each editorialized over the past year that GMO-based foods are safe and efforts to force mandatory labeling of these products is not the appropriate policy direction.

At the end of the day, we can hold our ears and shout “blah, blah, blah” until the world submits to dozens of labeling policies from various states and communities, driving up the cost of our food. Or we can adopt a rational perspective that GMOs really aren’t as bad as critics would like you to think.

Why the iPhone encryption battle matters to you

Dave Nelson, CISSP is president and CEO of Integrity. 


There is no doubt, the stakes in the battle over the San Bernardino terrorist’s iPhone encryption are huge. You need to be involved in this fight, pick a side and then be vocal. Call your legislators, write opinion letters to your paper’s editor, or any other means necessary to inform and engage others.

Certainly the terrorist actions were horrific. Families have been forever damaged. Our way of life has been attacked. These is no denying the pain and suffering caused by this senseless act of terror. On the surface it makes perfect sense to want to force Apple to break the iPhone encryption so that authorities are able to discover other terror links and those involved with this brutal attack.

We must, however, take a step back and look at two critical components of this argument. Setting aside our emotion, lets think rationally for a moment about the long-term consequences of the government’s request of Apple. We must also acknowledge the fact that while breaking the iPhone encryption may be the easiest or fastest way to the information, it is absolutely not the only way to get that information. That distinction must be made perfectly clear.

Let’s first consider the demand for a company to build something that it does not currently possess. The basic premise of our capitalist free market system is that the government is not involved in setting product strategy, pricing, or other day-to-day activities of private enterprise. Once we open this door, where does it end?  I understand this is a matter of national security, but we cannot continue to erode the basic principles on which our republic was founded in the name of national security.  This has happened for far too long, and there must be a limit to how far America changes before we are not America any longer.

The second issue of concern is actually the one of greater importance. It is the government’s insistence on breaking into encryption. In general this is a very bad idea. Think of all the things that are protected by encryption: every “secure” internet transaction from online banking to shopping and secure email. Protection of protected health information (PHI) in your medical records is accomplished with encryption. All of your tax records with the IRS including your Social Security number, earning history and charitable contributions are encrypted for your safety and security. Bigger picture - our nuclear arsenal, military communication, stealth technology, troop movements, battle plans…yep, all encrypted.

The fact of the matter is that encryption is a core component to just about every facet of our lives today. Both our personal and work lives are dependent on the bedrock of security that is found through the use of encryption.  Creating a backdoor or methodology to undermine the security of encryption could be devastating.  If you couldn’t trust the “SSL” used to do online purchasing, would you?  If people stopped buying online, how would that affect our economy?

The notion that the government is willing to let Apple keep this technology after they create it is absurd. Something this valuable wouldn’t be kept a secret for long. All the money the U.S. government has spent to protect military secrets has failed. China has built a stealth fighter jet based on stolen US technology. Who can honestly say this technology wouldn’t be even more valuable?

For those of you thinking I haven’t considered the other side of this argument, you are wrong. I was on Capitol Hill last year speaking with a Senate staffer working on national security issues for the Senate Judiciary Committee.  He asked, “If your child was kidnapped and the only way to find him was through a backdoor to the encryption on the kidnapper’s iPhone, would you then be in favor of a backdoor?” I looked him square in the eye and said, “No.”  I come from a long line of veterans who served during WWII, Vietnam and Iraq. One thing I know is that sometimes the sacrifices of a few must be made to protect the many.

While not having immediate access to encrypted criminal or terrorist information may have direct consequences, think of the bigger picture and the long-term consequences of a world where encryption cannot be trusted.  That’s not a world I think any of us want to experience.

Dave Nelson is president and CEO of Integrity. Dave Nelson 2015 IowaBiz Blog

Email: dave.nelson@integritysrc.com

Twitter: @integritySRC | @integrityCEO

Website: integritysrc.com

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