Year-end notes: 2010

The year end is fast approaching, I want to thank everyone for your patronage to my blog posts and ruminations on the markets. May you be blessed with good health and fortune this holiday season and beyond into 2011.


Financially-speaking, we should have much to be thankful for also. The equity (stock) markets have delivered to us a better than norm year of performance. If the year ended today, the popular stock market averages are ahead 11-13%. Narrower indexes are ahead 15-18%, some higher. So a buy-and-hold investor has more coin than when this year started. Our hard work appears to have paid off for clients too - as our mixture of non-US based ETF's and market timing reduced the "risk" of playing catch-up during the Spring and early summer market sell-offs.

But, it's been a rather rocky road to riches. How so, you say? The above results were garnered with five market declines along the way between 4 and 12 percent on the Dow Jones. First, a loss of 5%, then gain of 13%, loss of 12%, gain of 6%, loss of 7%, gain of 10%, loss of 7%, gain of 14%, loss of 4%, then gain of 5% to end up where we are today near Dow 11,560. Recall that every bear market starts with a 5% decline - and you just cannot predict which sell-off will be the "big one" like the 53% decline from 2007-2009 which many investors are still remembering vividly.

Not to toot our own horn too much, but our exchange-traded investments worked quite well this year. Silver, Gold, single country funds, and lately commodity-based investments like energy, grains and coal have kept us ahead nicely ahead of the market averages, while having a measure of cash out of the market or in bond-type investments.

We can take a page from a professional gamblers playbook here. Gamblers are most worried about drawdown, that is...what's the worse loss they can experience and still stay in the game. The deeper the loss, the bigger hole you have to climb out of ... agree? A 10% loss takes 11% to get to even; a 20% loss takes 25% to even, and a 33% loss takes 50% to get to even. As losses mount, the tendency is to make bigger bets to get whole again...a very risky strategy. Using the example above of the actual markets performance, a 14.4% drawdown was the maximum for this year (late April to July 2nd). By early August you were back to even, and by Election Day you surpassed the high value achieved in late April.

Bonds have experienced ups and downs as well. With all the monetary and fiscal schemes our government has tried this year, the end result has not made much of a difference to the average American's pocketbook or job prospects I feel. Savers and investors really have overlapping 'wish lists" when it comes to fixed income or bonds. Savers hope for high fixed rates to provide a decent income, and low inflation that will not eat that income up when they spend it. CD's, money markets and fixed annuities are favored here. Investors wish for that also, but also desire falling interest rates and a slow economy that will raise their bond investment values. Again, it circles back to price stability. How much drawdown can you afford?

Since early November, bond savers and investors have now become subject to principal loss akin to stocks. Interest rates are up about 1% for long term bonds since mid-September - a big jump. They are approaching the 4.85% high near Easter time. Bonds and bond mutual funds had a terrible November, many falling 5% or more since election day to now. When bond interest rates rise, bond prices fall. Cities and states are in financial trouble, and their borrowing costs are rising as well. Today, we just cannot find many reasonable places to put money to work that is not in stock-related investments - so we'll sit on cash for now until more favorable entry points arise.

The balance between stocks and bonds will work out over time. As bond rates rise, and you can lock in higher yields, say a 5% interest yield, then money should flow from stocks back into bonds; now it appears that stocks are favored.

We don't try to predict the markets; they will usually give signs on our charts as to what's working when trends develop. We'll continue to uncover profitable opportunities to invest client wealth while limiting drawdowns in 2011.

We'll check back with you next month.

Barry Unterbrink
Chartered Retirement Planning Counselor

ETF and market update

  In our last visit late August, we told you about our concentration of our clients investments in the emerging market country exchange traded funds (ETF’s). One reason for our profits in these countries is the fact that the hedge funds and pension fund managers have just recently discovered the opportunities in emerging markets but they had a hard time on how to invest overseas. Foreign objective mutual funds were the only game in town for 50+ years. Of course they know that Apple, Intel, Wal-Mart and GE have some foreign business exposure but many don't have a clue on the midsized companies in say, Brazil. (See Brazil Mid Cap ETF. ( BRF). These hedge and pension funds will continue to pour tens…even hundreds of millions of US Dollars into single country fund ETFs to diversify their client’s money away from an all-USA position. Money they have pulled from the US markets mainly is the supply source.


A more fundamental reason for the superior gains we have seen for our clients can be traced to the urbanization of these countries and the move towards a middle-class type society of consumers in the emerging markets of the developing world. Over 1 million urban residents are created each week in the developing countries. India alone will have 10 million urban residents a year move to the cities for over 20 years. China will have 17 million people a year moved to the cities for the next 20 years. 900,000 Chinese are estimated to be millionaires at years-end vs. 2.9 million here in the USA. China’s population is 4 times the United State’s. The rural peasants and farmers are now becoming lower class consumers. When they become factory or construction workers, and later educated to office workers and technicians their standard of living will increase and their appetite for consumer goods will soar along with the growth of the economy.

Now the subject of slums and the troubles that come with them will have to be addressed longer term, and not every Indian and Chinese will be buying a Mercedes, but the growth of these ETF investments is probably assured in developing countries (include Brazil and Russia too), and we want to be on-board the bullet train for the profitable ride. One last point….and I am not claiming “cause and effect” just a correlation: All these fastest growing economies have little or no taxes and NO welfare systems. County Funds at the bottom of our list are France, Spain, and Greece.

Stock Market Update
We'll the history books were favorably wrong for September and so far this month. The popular stock averages gained 7-10% since late August, and are hitting yearly highs as we go to press with this post. The Dow Jones Industrials had the best September since 1939! 
Country ETF's and our gold and silver ETF's performed admirably during this period. Yields of 3-1/2% to 5.25% are still available in the bond ETF market now; so that's where we keep cash awaiting investment. As we follow the trend of the markets, perhaps we should close the history books and "stick to our kinitting", to what Mr. Market is telling us today. Weigh in with your comments by clicking on "post a comment" at the end of this blog. I will reply to your questions post-haste!

~Barry Unterbrink, CRPC
(954) 719-1151

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