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

Billionaire Math

The mega-money being thrown around in Washington and the financial markets needs to be better understood. Million, Billion, Trillion – after awhile of listening to the news and reading the media wires, my eyes glaze over (MEGA for short).

Just how much money is a billion, or trillion dollars? I’ll try to put this into perspective so both commoners and math whizzes can appreciate it.

First off, we’re all quite familiar I am sure of one-million. “One million dollars”, The Millionaire Next Door book recently published, the myriad of lottery games with “million” in their name has made us comfortable with the term from our youth. One million is the next number after 999,999; it's 1,000 thousand, a 1 plus 6 zeros. After that, it’s quite easy if you remember the 1,000 rule. 1,000 million = 1 billion, (9 zeros), and 1,000 billion = 1 trillion, (12 zeros), then 1,000 trillion = 1 quadrillion (1 + 15 zeros). Okay enough of this already.

Let’s break the government’s $815 billion (and growing) Economic Stimulus package down to sensible numbers per person so we can get a better grip on all this moo-lah (money) soon to come showering down from above (we wish).

With a civilian work force of about 155 million Americans, that’s $5,258 per person.
At 35 million Senior citizens, age 65 +, that’s $23,285 per person.
At 50 million Americans now drawing social security, that’s $16,300 per person.
At 4.78 million American’s on unemployment now, that’s $170,645 per person (sorry, you’ll hog the whole pie if we let you).

Lastly, all of America, about 300 million people, that’s $2,717 for every man, woman and child!The $815 billion plan would be about double the existing dollars of currency and coin in circulation, about $885 billion now.

I hope and pray that the money is well managed and spent on worthwhile projects that benefit all American’s in this difficult financial time.

Even though January was a rough month again for the financial markets, gold and silver perked up nicely. Gold bullion rose about 5% while silver rose 13%. My next blog will discuss collecting coins and precious metals and their place in your overall financial mix. I think you’ll be surpised at the results.

Until next time, ~Barry

2008, A Recap

2008 - A Recap

There can be many reasons we should be grateful and happy with 2008. Our family and our relationships, good health, a roof over our heads and food in the 'fridge. But, we are working more. The median number of leisure hours available each week dropped to 16 last year, down from 20 in 2007 and 26 in 1973 when Harris Interactive starting tracking this stat. Working hours increased from 41 in 1973, to 45 in 2007, to 46 last year. With unemployment on the rise, 7.2% nationally, maybe working more is a good thing – it means you have a job!

It's quite certain now that the financial markets will end 2008 at sizable losses (I started this post between Christmas and New Years while in Virginia). It ranks pretty poorly in the historical perspective; the worst decline in stocks since 1931 using the Dow Jones Industrial stocks average. Kinda interesting that the stock market, in the Great Depression, climbed out of the malaise in the summer of 1932. It lost 25% in '30, 43% in '31, 8% in 1932, and then blossomed 54% in 1933, flat in ’34, then up 48% in 1935. I realize that it's painful, but be patient.

I am usually not upset over bear markets; it's part of the process of cleansing and renewal that we must expect in a capitalist system. What was difficult this go-around was that the credit and housing crisis forced the bear market into the once sacrosanct areas of corporate and municipal bonds, money market funds and similar fixed income investments. Investment principal reduced values, causing runs on stocks and mutual funds, which forced selling to meet redemptions from shareholders wanting ultimate safety in government bonds and treasury bonds. There has been a disconnect between a businesses prospects and earnings power and it's share price - a most difficult scene to manage money.

In the ’32 to ’35 period, corporate and Gov’t. bonds did quite well, averaging 11% and 8% per year respectively. One big difference between the periods; inflation. Consumer prices fell about 1% per year then, while last year’s inflation rose about 6%. Prediction: the huge government bailouts and money printing will bring inflation back; remember the Gerald Ford - Jimmy Carter years? Inflation averaged 8% a year between 1973 and 1977 – that's a big headwind to overcome to keep your money ahead of inflation. Perhaps oil and commodity prices will stay low, capping inflation a bit more. Gold & silver offered little solace last year: Gold +4%, silver -25%. Together they rose 22% on average in '07.

Washington and the "asleep at the switch" regulators received their nasty wakeup call in the mortgage and lending markets, where everyone was getting fat at the feeding trough the first five years of this decade. Just like all "bubbles" the 2005 to 'to be determined' real estate meltdown caught speculators and simpletons alike in the cross hairs of amortization assassination. My thoughts are that Washington needs to assemble an army of psychiatrists to make the decisions within most areas of finance, because it's investor behavior that rules most outcomes in this latest mess. The agreements, contracts, repayment schedules, prices, etc. meant very little. They were the 'drivers', but human irrational decisions are wired into our phyche; hey now I sound like a psychiatrist !

I hope that you've spent a few minutes each month reading my financial blogs and have benefitted in some way by my outlook and specific strategies. (The archives are on the right side of this page). Among the blog posts this year ...January - Bear Market history lesson; hedging techniques. February - I outlined retirement account transfers and rollovers, advantages and disadvantages. March - Retirement account deadlines (I.R.A., etc.) and potential growth of your balances. May - Investment Do-over (How fixed index annuities can prevent market losses and grow your savings). June - Half-time report: using diversification to reduce risk of loss (Telephone Hotline Started). August - Market Update and the benefits of dollar cost averaging. September - The 7% Strategy and the results from 78 years of market history. October - Assessing the bear market and invitation to my retirement planning workshop. November - Holistic Retirement Planning: post review of retirement workshop. To re-read any topic of interest, just click on the dates on the right side of the page, and you'll be taken to the specific post.

Look for more helpful topics in 2009 involving income planning, using options, etc. Sorry for some doom and gloom on this post; but it’s my job to worry about money. I signed up for it!

Give me a call for a free portfolio review, and to assess investment options you may not have considered. Please try to have a better 2009, and count your blessings we have around us that we often take for granted.

Barry Unterbrink
Chartered Retirement Planning Counselor
(954) 719-1151