Charles Wilson, CPA/CFF, CGMA, CBEC
In the Houston metro area call 281-
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The opinions contained herein are not intended to be investment advice or a solicitation to buy or sell any securities.
Archer Investment Corporation manages The Archer Funds. You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing. You can download the Archer Investment Corporation ADV Brochure HERE. The Fund’s prospectus contains this and other information about the Fund, and should be read carefully before investing. You may obtain a current copy of the Fund's prospectus by calling 800-
Past performance is not a guarantee of future results. The investment return and principle value of an investment in the Fund will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the Fund may be lower or higher than the performance quoted. Performance data current to the most recent month end may be obtained by calling 800-
The Archer Funds are distributed by Arbor Court Capital, LLC, 8000 Town Centre Drive, Suite 400, Broadview Heights, OH 44147 Member FINRA.
Archer July 8, 2020 3rd Quarter Outlook
with Charles Wilson, CPA/CFF, CGMA & Troy Patton, Portfolio Manager
Posted: Wednesday 7/8/2020 11:53 AM ET
At Archer, one of the things we have always looked at is the past for guidance on the future. History tends to repeat itself. Many of you can see this in your own lives as well. Using history should be a guide and not a crutch, however. If you stare at history long enough you will be doomed to repeat it. Much like staring in the rearview mirror while driving down the road will cause an accident ahead.
We have discussed history many times in our newsletters. We typically have a variable cycle that follow some pattern. However, the most recent trends in the economy are outside the norm of a typical trend. The reasons are a bit different. With the looming coronavirus and social unrest, the politicians decided to throw enough money into the system to backstop the economy for a time. We discussed this in the last newsletter. Money supply is up 25% in the past year which is one of the fastest Year over Year rates seen.
At first glance based on the expected earnings coming, the market looks extremely overvalued. One could say the S&P 500 should be around 2326 and here we are at 3150 as seen in the following chart. Prior to the closures and the civil unrest, it appeared to be overpriced at 2800. However, we believe the reason it is much higher is the next round of Quantitative Easing is going to happen. In fact, the Fed has announced plans to purchase other assets which are still incomplete. Further, it is possible prior to the pandemic, earnings were to grow at a 7-
We follow this chart up with another showing the market is overvalued based on the put/call ratio. This has been one of the most accurate charts from time to time showing whether the market is overpriced or underpriced. In normal circumstances this would give us serious heartburn about the market. However, more people are returning to normal by flying, driving, etc. The consumer has been out in full force. Yes, they are buying from Amazon, Lowes, and select other retailers who have great online presence. However, this money supply has buoyed the market to extreme measures even though it looks overpriced.
If we go back to the question, "what is normal?" We need to look at the chart below. When we look at our economy, the main risk is the workforce falling apart by not returning to work or by not wanting to work because the stimulus Washington pays them deters them from working. The chart below shows the job openings just reported. As you can see, job openings are rebounding with over 5 Million jobs available. Lowes can not hire enough people. Unfortunately, Washington is paying more for people to not work than to take a $15 hr. job at Lowes.
Until the job market gets back to normal, we should see the market rangebound from where we are, give or take 5%. We think the risk to the stock market is to the downside currently, given the political and social division the country is facing. Should we get past the coronavirus with a vaccine or herd immunity, we are likely to see the Secular Bull Market break out again and profits begin to expand. This is not nearly as impossible as many believe, given the money supply, job environment, corporate and individual friendly tax environment.
We have many issues facing the country currently. Some of them seem daunting and difficult to overcome. Remember, this country has existed through Two World Wars and a Civil War where we lost 2% of our population. I have no doubt we are going to put our patience to the limit and there will be unintended consequences. However, the end result will be the same as it has in the past. The markets will ultimately move higher (possibly just due to inflation -
Looking Ahead (posted last quarter, but still relevant):
We are looking for the three positive signs for our stock market to rebound:
We know the spirit of America is much intact and everyone is focused on a positive outcome for this crisis. There are essentially four to five defining moments in the country during each of our lifetimes and some of us have now seen them all. World War, pandemic, attack on the USA, and financial crisis to name a few. They each made us smarter, more responsive, and better as a society, but not without some pain in the short-
The Archer Team
Troy C. Patton, CPA/ABV
Steven C. Demas
John W. Rosebrough, CFA
The opinions contained herein are not intended to be investment advice or a solicitation to buy or sell any securities. Archer Investment Corporation manages The Archer Funds. You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing. The Fund’s prospectus contains this and other information about the Fund, and should be read carefully before investing. You may obtain a current copy of the Fund’s prospectus by calling 800-