October ended with the S&P 500 up 3.6% after the government shutdown issues evaporated. The markets don’t seem concerned about health care news. Indicators like employment and GDP may have an impact on future markets.
Last month markets reversed from down in August to up in September. Small caps and large international assets delivered better returns so our diversification helped. Government shutdown in October and will role into the debt ceiling debate on October 17th.
It’s been a few months since our last monthly video, but here it is! In this video we talk about market activity and adjustments made recently. We also go over allocations, volatility and risk management.
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Asset Management Strategies, Inc.
Hi everyone. Welcome to the February 2013 newsletter. Let’s review the market activity for February and talk a little about the economy.
Looking back at the markets for February, we saw a gain in the S&P 500 of just over 1%. International markets were down by almost 1% and our bond market was down as yields have started to move higher. Although a 1% gain in our broad market may seem like a letdown after a 5% gain in January, it does continue the momentum as the markets move forward. A lot of the time, you’ll see some profit taking and a pullback just after such a strong month and we are fortunate to have avoided that even with the deadline of the Sequestration looming at month end.
So how is it, or why is it, that the market is moving ahead even in the face of such dire political calamities? It appears the investing masses are shrugging off these political dramas and are not reacting to them. The world was coming to an end in August 2011 when the debt ceiling was raised and US debt was downgraded; the world was coming to an end when the Fiscal Cliff was looming Jan. 1st; and again at the deadline for the Sequestration on Feb 28th. Obviously, $16 Trillion of debt, and growing daily, is a serious issue. The media isn’t completely blowing this out of proportion. But, it’s almost like they’ve cried wolf too many times and everything didn’t come to an immediate halt. Social Security checks weren’t stopped, our military wasn’t sent home without pay and, to all outside appearances, our world looked remarkably the same as it did before these extraordinary political milestones.
I attribute all of this to improved consumer sentiment. We are just in a better mood about the economy. No, it’s not where we would like it to be, but I think we all feel like the worst is over in the housing market (everybody feels a little better now that our home values are increasing instead of falling) and, because of our improved mood, we shrug off a bad economic report where, when we’re in a fearful mood, we would seek them out and focus intently on bad news to confirm our lousy disposition. As we see the continued fumbling of the fiscal situation politically, we have learned not to overreact and instead focus on some of the positive economic trends.
And there are some positive trends. I recently attended a presentation from one of the mutual fund families that highlighted several bright areas. Of course, I’m always cautious about the information they provide us since they have a tremendous incentive to always look on the bright side. You’ll never hear them say, “Everything is turning to road apples and you should sell out of all of our funds.” Understand that they make money from you sitting in those funds at all times, so under no circumstances will that ever happen. Even still, some of their points were very interesting. There are three areas that should contribute to economic growth: housing, energy production and, believe it or not, manufacturing. Homebuilder sentiment has greatly improved, which usually points to increases in activity. Even with a slight recovery, we are still at roughly half the 40 year average for housing starts. Get back to the average and this could add 3 million jobs. Crude oil rig counts have exploded from under 200 to over 1400 in the last 10 years and last year was the first time in 49 years that we were a net exporter of oil. Our natural gas costs are one fifth of Japans, Korea and China and one third of Germany’s so we should add 3.5 million jobs expanding those efforts. Lower energy costs, and higher worldwide labor costs, helped reverse another 40+ year trend: for the first time in almost 50 years, we saw an increase in US manufacturing jobs by a half million new jobs in the last 18 months. Coleman, Masterlock, Stanley, Starbucks and Whirlpool have all announced plans to bring jobs back from China and Volkswagen will move production of their Passat model to Tennessee, saving an estimated $8000 per $28000 car. This could add another 2-3 million jobs over the next 10 years.
Not to say that everything is fine and that all our problems are behind us, but should the economy continue to recover, it could go a long way to reducing the urgency of our political leaders to make drastic changes to the federal budget. For example, if we increase GDP growth from 2% per year to 4% (which is not an easy task), we would have a balanced budget even with our current spending levels and tax structure. Therefore, we are not yet past the point of no return in being able to pay off our national debt. Yes, we are getting closer hour by hour, day by day, but, depending on the growth of the economy, no one can predict how much longer we can go down this path before we reach that point where we will not be able to reverse the situation. The scariest part of this equation is that should the economy not improve to repair the problem, the only other option is for our politicians to do it and, apparently, they’re too busy playing politics to actually solve any problems.
As far as the portfolios go, we remain fully invested on the equity side and expect the markets to continue this climb for several more months, not withstanding some major problems flaring up. That’s all I have for this month. Thanks for listening. Please feel free to share this to anyone who you think it might help. Talk to you next month.
Welcome to the January 2013 newsletter. 2013 is certainly off to a great start as far as the stock market is concerned.
Let’s take a look back at the unexpected performance for the month: the S&P 500 was up just over 5% which was surprising considering that at the end of Dec we were faced with the deadline of the Fiscal Cliff and it appeared that our only two options were for the market to go down a little or go down a lot. Once the political issues were no longer the main focal point, the markets sought direction from the economic health of publicly traded companies and responded nicely from positive earnings growth reports. Even as Apple disappointed, the market shrugged it off and forged ahead. The so-called January Effect says that as January goes, so goes the year; let’s hope that’s the case this year.
As frightening as the situation looked at year end, things changed very quickly in the market and we were able to get back in to capture much of the gain. If you’ll look at the market for the last two months of 2012 and now the first month of 2013, you’ll see that the overall gain was actually less than the market performance just in Jan. This shows how beneficial our process is in that we were out of the equity markets right after the election and didn’t get back in until the first of Jan, thereby enjoying most of the gain even though we avoided the considerable risk by being out almost two of the three months.
Once again, I think an important lesson to be learned here is how the media works things up into a frenzy and yet the outcome is melodramatic. Not to say that we don’t still have significant challenges to overcome (I can think of 16 trillion of them, in fact), but for now the markets seem to be ready to continue this run. The media can go back to finding something else to dramatize; like the actual headline I saw last week: “Is your toilet ready for the Superbowl?”
So, as we’ve been since the second day of trading in January, we’ll remain 100% invested on the equity side and watch carefully for any signs that this rally is losing steam. That’s it for this month. Thanks for listening. Let us know if you have any questions and feel free to forward this to anyone who you think it might help. Talk to you next month.
Welcome to the December 2012 Asset Management Strategies newsletter. I hope that everybody had a great holiday. Where do we start?
Before we get into the fiscal cliff debacle, let’s look at December’s market action and then the entire 2012 year. The S&P was up 1.19% for the month of December, which was basically all in one day, the last trading day of the year. Until that, the market was slightly negative for the month.
Of course the month was dominated by the fiscal cliff deadline that moved the market with every hint as to how it might play out. We were completely out of the markets for the month, which was well worth the 1% gain to avoid what could have been an ugly market selloff, had the deal not been made in the 11th hour.
For the year the market was up 13.4%, with small caps and international doing even a little bit better than that. But, as you’ll notice it was not without some drama as the market was up 10% then lost all of that back, only to rebound and sell off again after the election and then come back again at the end of the year.
We have to congratulate this market for posting a positive year in the face of some serious issues. The European debt crisis played a part but most of the sentiment was focused on our economy, our debt, and the election.
So let’s talk about the fiscal cliff, or as I like to call it the fiscal cave-in. I’m reminded of the hysterics the first part of August 2011, when the government’s back was firmly against the wall and the politicians were able to wriggle off the hook and did nothing of substance, kicking the can down the road to this recent deadline. Now, faced with no other options but to cut taxes or cut spending, somehow they managed to negotiate Option C… none of the above. The tax increases at the top end will do little to increase revenues and the increased spending has already eaten up more that gain, increasing net spending by $3.9 trillion over the next ten years.
If can-kicking were an Olympic sport, our elected officials would all receive a gold medal. How the stock market can be pleased with this I have no idea. I was amazed at some of the comments in the media over the past few weeks saying that the fiscal cliff was a manufactured crisis. It’s hard to see how $1.6 trillion of annual deficit and a total long term debt of $16 trillion could be viewed as anything but a problem is difficult to understand. The fact that they solved the problem by doing nothing maybe means that it really wasn’t a problem after all. If it’s not a problem now, when will it be?
As I said last month, I hope that the hype was overblown but I am surprised at how much. Nevertheless, as always we will not argue with the market. Whether relief that a deal was done, or just a temporary reprieve, it appears that there is money to be made in the short-term and we are re-positioning back into equities.
That’s all for this month. Thanks for listening and we’ll talk to you next month.
Hi. Welcome to our November 2012 newsletter. I hope everyone had a great Thanksgiving we want to extend our best wishes for a safe and happy holiday season.
Looking back at the market activity for the month of November, the S&P ended with a loss .8% while the Dow was lower by .1%. Of course, that doesn’t tell the whole story for November as the market dropped just over 5% from the start of the month to mid-month before recovering the second half of the month. Since the election, the market has been laser focused on the Fiscal Cliff issue. It seemed to jump from headline to headline as the two parties attempted to negotiate a solution which certainly was not resolved by the end of the month.
The major concerns for the market and the economy are the proposed approaches to addressing this issue: raise taxes, cut government spending or both. While most economists (and all of the media) expect any outcome to result in a dip back into a recession, the only debate is for how long. Currently, the government spends $3 for each $2 it takes in so you would think that something has to be done. Based on the present posturing of both parties, I expect there will be a combination of higher taxes and some reduction of spending. Keep in mind that cutting government spending is not defined the way you or I would define cutting; when they talk about cuts, they are referring to the increase in spending, not cutting into the amount that was spent last year, like normal, logical people would think about cutting. The government uses what they call Base Line Accounting that never reduces the amount of spending, only the increase in spending. A year and a half ago, when their backs were to the wall, faced with possibly defaulting on their obligations, they resolved to “cut” less than 10% of the spending increase scheduled over the next ten years. Considering that, my hope is that the hype over that Fiscal Cliff is overblown and that a reduced increase in spending does not hit the economy as much as feared and that increases in taxes do not cause as much immediate harm as feared. Like most crisis’s, I boldly predict that we will survive this one, too.
The great thing about our management style is that we don’t have to know how these things will play out. Trend following watches asset price movement and responds to that only; not my opinion or attitude or experience or ability to read the tea leaves. It’s a discipline. And, especially now, I sleep a lot better knowing it is working in the background and you should too. I the first week of November, we sold the last of our equity holdings and moved completely into bonds and remain there. This is not a market that I’m regretting being out of. As we sit in bonds, the combination we are using has a current yield of about 4.25% so we are making some money while we wait, but keep in mind, that the purpose of going to bonds is not necessarily to make money in bonds, it’s to preserve capital and protect if for a catastrophic equity loss, which is absolutely not outside the realm of possibility.
I also wanted to let you know that I’ll be interviewed on a national internet radio program this upcoming Thurs the 13th on December at 8:30PM EST. It will be recorded and you can listen to at your convenience at a later time. We’ve provided a link in the cover letter. That’s it for this month. Thanks for listening. As always, please share this video with friends or family. Talk with you next month.
Hi everyone. Welcome to our October 2012 newsletter. We purposely delayed getting the newsletter out this month under after the election, since that we such significant event. We’ll talk about that in depth, but first I’ll recap what went on in October.
Looking at the chart for the S&P 500 for the month, we see that we had a couple of attempts to push the market higher, but finished near the lows at the end of the month. The S&P was down 1.8%, the Dow off a little more at 2.4%, but the international was up .8% which is where we had about 2/3 of our equity allocation deployed. Most of the later part of the month reflected the disappointment with some earnings reports. Actually, the earnings were better than expected, but the guidance (or future outlook) from the companies concerned the markets that a slowdown is ahead. The major economic indicators and Europe were relatively quiet so more attention was placed on the earnings. Just another example of how difficult it is to predict how the market will react: good earnings numbers and the market sold off.
As for the election: what an ugly process we have created in our political system. From the amount of spending on advertising to the unpopular Electoral College to the extreme partisan bickering, it was a painful thing to witness. It seems like nobody “won” without getting their nose a little bloodied. So how will this affect us going forward? We’ve already seen a sharp selloff since the election: since Nov. 1 the market is down 3%. But let’s go back and look at the market activity surrounding the last Presidential election. From Oct. 27th to Nov. 17th in 2008, the market dropped 17% so we are far better off this time around. Of course, there were other issues contributing to that market drop; not just the result of the election. As you can see, the market bottomed out on March 2nd in 2009 which was a total decline of 29% from Oct. 27th five months earlier. From that point, the market climbed 115% to its peak on Sept. 10th this year. Of course, that peak was still lower than the all time peak of 1526 in July of 2007.
Over the last four years, the economy has struggled ahead slowly, almost as in slow motion. I would predict the same for the next four years if it weren’t for the Fiscal Cliff facing us in Jan. as the government will be forced to either raise taxes or cut spending, or both. Remember the last time the government was forced to address this issue? That was August of 2011 and they didn’t deal with it and that’s how we’ve gotten to where we are now. It’s hard to forecast a solution to this problem that doesn’t carry painful side effects.
So we’re taking protection in the portfolios and reducing the equity holdings down to only one. If the market sells off further from this point, we’ll wait patiently for an opportunity to get back in. If it somehow finds a positive in what it sees and starts back up, we’ll respond as quickly as we can to capture any sustained run up. Right now, I’m more concerned of what we could lose than what we might miss gaining.
Also, this month, we’re including a couple links to articles that I’ve been quoted in. Please let us know what you think. That’s it for this month. Thanks for listening. As always, please share this video with friends or family. Talk with you next month.
Hi everyone. Welcome to the September 2012 edition of our newsletter. The markets behaved very nicely in September with the S&P up another 2.6%. The Dow was up about the same amount and small caps and internationals were up just slightly more than that at 3%. The stimulus package announcement was probably the biggest contributing factor to the increases last month coupled with the absence of any significant bad news. Issues in Europe are still being sorted out, but there wasn’t any major deterioration to those developments.
The major economic indicators still seem to be a little mixed which, I think, would reflect most people’s perception of how the economy is doing. The progress is slow and certainly isn’t where we would like to see it, or moving in that direction as quickly as we’d like to see it, but there is improvement.
We started at the beginning of September with about a 60% allocation on our equity side and saw that increase to 80, then on to 100 before selling 20% right at the end of the month to finish with 80% invested on the equity side. Things look pretty quiet coming into November with the focus on the final stretch to the Presidential election. We will watch carefully to see if the market can push through its recent highs and continue further or if it finds something to be concerned about.
That’s it for this month. Thanks for listening. As always, please share this video with friends or family. Talk with you next month.
Welcome to the August 2012 edition of our newsletter. This month the markets continued their gradual climb upward with the S&P 500 up 2.3%. The Dow was up only have of that, but the international market was up slightly better as the dollar has strengthened against the Euro. The market dipped down the first two days of August on fears from Europe before remembering that it had decided that that issue was being dealt with. The last three weeks saw the markets settle into a very quiet range with little volatility.
Always remember that the market is just a barometer of the mass attitude of the investing public. If more buyers come in, prices rise. If more sells show up, prices drop. Notice on this chart of the S&P 500 where the buyers were only able to push the market up to a lower high followed by a lower low. Next, another slightly lower high before turning down again. This can mean that the buyers are running out of steam and the market is setting up for a decline. Or, it could mean that the market is only able to propel to this height with the news that it currently has and will need more, good information in order to justify attracting more or new buyers to resume its climb. Time will tell and we will react accordingly.
This might be easier to understand if we look back over a longer period. This chart shows the value of the S&P 500 from March of 2000 (where it peaked) through the end of August 2012. Over this 12 year period, we saw two massive market meltdowns; the likes of which we had only seen twice before: in the Great Depression from 1929 to 1934 and in 1973-74. According to the chart, the market was down 8.16% over this 12 years. Think about where the masses minds were during this dramatic time; huge selloff from 2000-2002 as people fled the markets in droves after the tech bubble burst. Once the bottom was reached and all the fearful sellers had bailed out, the market started a steady recovery. That is until the credit crisis hit 2008 and again folks ran for the hills with their money as the fear was that the financial markets might collapse completely. As I’ve said many times, I don’t know exactly how close we came to a complete system failure at that time, but I promise you we have never been closer. By far the most frightening time I’ve ever seen.
But look what happens if we look at just the last 10 years; from July of 2002 through August 2012. The chart shows the market increased over that time period by 64.48%. That’s a very different picture than the negative 8% we saw for the full 12 years and it illustrates how damaging that first drop was. Each of these two drops showed how the market prices in complete disaster, but once cooler heads prevail the values resume their natural climb, even when things are anything but normal. This shows the power of attempting to avoid the worst of these market drops.
With the gains stalling out toward the end of August, we did see a reduction in our equity holdings and went from 80% to about 60% invested on the equity side. We’ll wait for direction from the markets to see if we’ll pull back more or if the market increases will resume.
Thanks for listening. Please visit our website to see our newly added videos along with a new button that will make it easy for you to schedule a call with us. As always, please share this video with friends or family. Talk with you next month.