Market Update: Stocks crater; bonds and precious metals have their game on!

Stocks crater; bonds, and precious metals have their game on!
It's been rough sledding in most of the equity (stock) markets the past couple months. The second quarter (April-June) saw no growth in the major stock indexes. In the period, stocks gained 7%, then fell 7%, then rallied into late June to finish even-steven for three months. July saw stock prices fall 2%.

It appears that the stock market wasn't at all inspired by the debt limit and spending brouhaha and negotiations and then passage by the Congress yesterday. Stock prices have fallen 8% in the past 8 sessions; and today looks like it might eek out a small gain. Year-to-date, the S&P 500 Index turned negative yesterday; no gains since New Year's. That is why it is imperative to mitigate your risks of owning stocks by investing in other areas. To wit, Asian stocks have basically ignored our troubles here, and rose in price by nice amounts: markets that you don't hear much about by the "talking heads" on the televison. Singapore, Thailand, Indonesia to name a few. Another area regaining it's glitter is gold and silver, which I've discussed in prior posts. July gains of 10% and 14% in the duo, respectively helped offset weakness in the US stock market. Bonds too are the preferable place to normally be when you have cash sitting on the sidelines and not stock invested. Bond, bond ETF's and bond mutual funds have been on fire of late as interest rates fall (bond prices rise). Gains of 1.5% to 3% are seen on the charts just in the past couple weeks. Phenomenal if you hold them.

Depending on your portfolio structure, a 10-15% allocation to metals or foreign stocks can have a noticeable effect on your performance. As for bonds, they can lessen your portfolio losses as well and keep you sleeping at night. Plus an added benefit is not being in the position to have to sell ALL your stocks in the bad times when your money is spred outside of US stocks. It's the mixture of stocks / bonds / cash that mostly determines your portfolio performance moreso than the individual securities owned.

In really nasty down markets, often staying even, or losing less is a favorable outcome. Remember, virtually all 30%-50% stock market declines start with a 5%, 10%, 15% decline first. Is your financial advisor offering you ideas like this?

National Deficit Math

We better get used to the "T" word now that we're deeply into the Trillions of dollars in our national indebtedness; $14 trillion last time I saw that clock-thing counting higher on the T.V. So just how much is $1 trillion?  It's 1,000 Billion dollars. It's 1 with 12 zeros trailing. It's a whole lot of coin! Per capita (per person) in the United States, that would equal about $44,000. So if we all chip in, we could wipe out all of America's debt over 10 years with JUST $12/day for you and me and the kids until year 2021. Any takers? Anyone trust our government not to get back into this mess again? Ponder that until I post again.

Personal Note:
August 2 marked my 29th year in the financial services business; starting 1982 at Dow Jones level of 822. My father hired me to join his investment newsletter and money management business out of college with my finance degree; thanks, Dad - for then and for all your assistance and mentoring through the years! 

The Dog Days of August

August 30th

  Well, the sun will set tomorrow on another calendar month. Here in Florida we call August the "dog days". They are the hottest, most sultry days of summer. They usually fall between early July and early September. They can also define a time period or event that is very hot or stagnant, or marked by dull lack of progress. The term has frequently been used in reference to the American stock market. Typically, summer is a very slow time for the stock market, and additionally, poorly performing stocks with little future potential are frequently known as "dogs."


  The stock market isn't fetching many good tasting bones either lately; the market's down about 5% this month and down 11% since we alerted you to the May-October seasonally weak period for holding stocks. Market history does not bode well for September, either. In my archives I find another interesting tidbit. The absolutely worst month to hold stocks: SEPTEMBER. Some simple market strategy: just sell everything in September and buy back when things and indicators look better in October. This is not a recommendation just some food for thought. To end on a good note; many Octobers have been excellent entry points to powerful rallies. We don't predict - just follow the trends and reduce the risks along the way.

As our clients know, our investments in companies in Thailand, Indonesia, Malaysia and our Silver and Gold ploy has made us money and saved us from the sizable declines some other advisors have experienced. We are not the best but our clients sleep well. Where to park cash that's not invested in stocks? We're using the income-based exchange-traded funds (ETF's) investing in diversified corporate, government and oversease debt; they pay between 3.5% and 5.2% per annum (sure beats zero percent matress money that the money funds pay). We also watch the charts of all our investments. Does your broker-advisor use technical indicators from their toolbox? Bonds can fall as fast as stocks when interest rates rise - always a worry around the corner in this business.

Do contact us if you have any questions or comments - we would like to steer you in the right direction with your investments, retirement plans and other important money.

Do enjoy the upcoming Labor Day weekend with your friends and family.

Until next blog, be well.
 
 
Larry Unterbrink, Director of Research
Barry Unterbrink, Managing Partner, Chartered Retirement Planning Counselor

Recession End? What To Contemplate Next?

If the 2007-2009 time period were to somehow in the end encompass the economic collapse and surrounding recession, then what's the next actionable course of action to contemplate with your money? That, friends, is the $64,000 (no, let's up the ante and say $64 billion) question. As investor's, we have to look forward to what the future could delve out to us if we are to prove resilient and flexible to profit from the opportunities ahead (or avoid the roadblock or cliff just around the next turn). For many who don't do our homework or fail to assemble plausible outcomes based on past market behavior, there remains little doubt that costly mistakes will embed themselves in the outcomes. I've observed over the years the one-liner "this time it will be different" often precedes anything but ... that is, investor hope and greed extrapolate into the future the continuing of the current good times or bad times. The trouble with that reasoning is: by the time the good or bad times are evident, most of the damage has already been done. By then it's really in the last innings of the boom or bust cycle. There are exceptions, of course.


The current bull market rally in the stock market is a case in point. My last blog on the market's condition Does This Rally Have Legs? was penned in mid-March 10 days after the now-important and recognizable market low near Dow 6,600. The gains in the average stock prices since then has been very enticing and rewarding: Dow Industrials, up 1,685 points, or +27%, the S&P 500 Index, up 220 points, or +33%, and the Nasdaq Composite Index, up 423 points, or +33%. The current rally, which has taken off "like a scalded dog" the past 10 weeks, no doubt took many by surprise. This begs the question then, what do we do now?


If you owned stocks or stock mutual funds along the way up, your should continue to hold them based on your risk level and stage in life. The market's rally may poop put at some time, or roll over and decline substantially, so protecting your recent gains is important. If you're up 25%, I would not give back more than 7-10% of that should prices fall back again. Remember, cash and bonds should hold a place in your portfolio for what's not invested in stocks. Bonds, which had a decent 2008, have not performed well so far this year. The competing stock market, and the flood of the massive new stimulus money contributes to the rise in interest rates. The Government's ability to raise more money is at a higher cost, thus depressing bond prices. The 10 year Treasury bond's yield rose from 2.24% to 3.45% this year, while the 30-year variety moved up from 2.7% to 4.4%. That's a huge jump in rates in just 5 months!

Inflation should be watched carefully with every report. As it heats up in future months and years (which I believe it will), then your investment income will suffer. Consider: if your portfolio is growing at 8% and inflation is 4%, then you can afford just a four percent withdrawal rate to keep money protected from inflation-risk. During Jimmy Carter's reign, inflation averaged 8%, so you had to curtail your withdrawals for some time back then. Interest rates spiked up then, killing your bond portfolio value also. It would take a delicate balance and some luck then to hold onto your principal and generate a decent after-inflation income.

If you buy off on the scenario that I have outlined above, then consider using a guaranteed income annuity to fund part of your retirement income. Insurance companies guarantee your income in future years. Example, investing $100,000 today, a 51 year-old could receive $7,512/year for life when they are 56; wait until age 60 and the income jumps to $10,282/year. That's minimum income - it could be higher if the markets your account balance is tied to performs better. Ask me for a complete illustration on how this works.

Be sure to read the blog post before this one on Gold and Silver investing; it could be rewarding to you also. Be safe out there investing!

Barry Unterbrink
Chartered Retirement Planning Counselor

Market Update ... Does this rally have legs?

The "stock market" can cause us all frustration. It can be your friend one year, and your mortal enemy the next. Lately, it seems like a game of chance, with no rhyme or reason to its ups and downs. The "stock market game" has seemed during the past 15 months to be greatly stacked against investors - lots of losing, and each glimmer of a gain gone in a fortnight or two. Perhaps that's about to change.



If you are investing for life, then you have to pay attention to the market and the indicators that tell you it may be safer now to invest than in the past. In short, the risk of losing more money in stocks may be lower than the reward. We call that the risk/reward ratio. By using indicators of the stock markets movements, we can chart the progress of the various market averages on a chart and then make some assumptions for the future. I won't get into all the ways that technical analysis is used to limit risk, but it's safe to say that a dose of this along with some common sense saves people from major disasters with their stock and bond portfolios. As a money manager, I show options and develop strategies outside of the human frailties of hope, feer and greed.



What to do now? Stock prices are currently up about 8% this month, and on a strong up-trend the past 8 sessions, rising about 16%. That's the biggest such rise since the mid-November bottom lasting about a month of a 24% rise. Notably, economic data has been good in some areas. Building permits rose 9% above the forecast, while housing starts were 30% above forecast. Related stocks, benchmarks of consumer spending are rising smartly; Home Depot, Lowe's, -they tacked on over 20% each in the past two weeks. UPS, Fedex, Harley Davidson are all adding points to their quotes. Could this signal the end to the recession; I doubt it. But could this be a signpost that the market perhaps will not go noticeably lower, and start to rebuild in 2009; I think so. Also, deal-making is starting to pick up; a few mergers were announced this past week.



Sure, there are plenty of trouble spots; GDP is declining, consumer spending is down, so is business investment; unemployment is up, 7.9% currently. Remember, through history, stock prices usually reach their lows in the middle of recessions, and since we don't know when recessions end, until months later, we can't gauge the time. Since the current recession started in Dec. 2007, and with a low of around Dow 6,600 earlier this month, that would equate to a 30 month recession, ending June 2010. But ... the stock market could be much higher by then, before the announcement of the recessions end. That's been the case through history. If you're a long term investor, with cash on the sidelines and out of stocks, you may wish to consider moving some money back into stocks. (I am assuming that you did not hold all your stocks or funds in this downturn, but if you did, you're brave and truly a long term investor who no doubt will prevail over time). Perhaps add 15-20%. I know it's hard to do emotionally. But usually if it hurts to act in investing, it's usually a worthwhile move.



Remember the dollar cost averaging method? Placing money into your retirement account in stages, not all at once. This smoothes out the prices (and gains and losses) you may experience along the way. Example, $10,000 invested at the end of August last year would we worth $5,800, a 42% loss by late Feb. The same $10,000 broken into 7 pieces of $1,428 invested on the last day of each month (Aug. thru Feb). would be worth $7,900, a 21% loss. Sure, they are both losses, but it's much easier to overcome the smaller loss. Also, don't neglect dividends. Using a broad index fund like the S&P500 in my example here, you are collecting 3.7% in dividends per year from the component stocks in the index, even if stock prices stay flat and go nowhere for awhile - that's near the current yield on the 30 year Treasury Bond. All or None are rarely good decision-making words, in life and in investing.



A client called last week and stated that she was tired of the poor performance of the stock market, and instructed me to avoid all stocks starting March 12th. She would be happier owning bonds and CD's, and forego any future gains in stocks. That's certainly a bold decision by her; and if you can sleep better at night, then it's apropos. I disagree with being 100% in bonds, for most all investors. She stated that she wouldn't lose money in bonds, which is false. Bonds can decline when interest rates rise, and rates are the lowest in a generation. Bonds can default and not pay your interest or principal back. After reviewing another account of bonds she held manged by another advisor, I noted losses of between 14% and 52% on specific bonds or bond mutual funds in her portfolio. One bond was issued by a municipality on the verge of bankruptcy! I guess she perhaps did not understand or have time to review her statements. I hope I can continue to help her with her portfolio and persuade her that a proper mix of stocks and bonds will serve her well. Being in her mid-70's, this is not the age to start to understand your investments or make money mistakes in your retirement years.



Call or e-mail with any questions or to set up an appointment for a free portfolio review.

I did promise a post on precious metal and collectible investing. Be patient, it's coming soon.



Barry Unterbrink

Chartered Retirement Planning Counselor