That Was The Week That Was- 2nd Week November

 Just as people are getting back to work and rejuvenating their 401ks Vanguard, the money management folks, have come out reporting that-‘ dollar-cost-averaging is not the best way to invest your money.’ It seems that investing in lump sum has better results.

Most people only have a little money they can put away each and every month. But once in awhile a few people, either inherit or though some luck, find themselves with a significant pile of dough. Vanguard says to these folks, ‘dump it all in’ and you’ll be better off in the long run.  To that end the folks at Vanguard ran some pretty sophisticated computer models to show that there would be, in an almost perfect world, a difference in total gains between savings a little bit each month or investing it all in one sum. The dump all in crowd came out a winner- which, to tell the truth- I can’t believe. Because I think if someone started saving in 2000 and retired in 2007 they’d be significantly under water no matter if they dumped everything in or invested by dollar cost averaging. It’s all about the timeline. Or, as the investment types say, ‘Rolling periods.’

And, as I delved into the report, sure enough the difference between the two methods, over rolling periods, was significant but not by  ‘buy a Gulfstream’ significant.  Luck, it seems, also plays a more than significant part in investing. Those generations before us caught a huge wave as the S&P 500 index climbed from around 100 when Nixon was President to about 700 when Clinton left office. Today the index stands around 1400 from where Clinton left office. That, my friends, is where the lump sum and dollar cost average crowd can both agree. The investment years from Nixon to Clinton were much better than the years from Clinton to Obama. And as we look from Obama to whomever it seems that either lump sum or dollar cost averaging works-the markets have created more wealth than any other method of saving.

Stop! Required Minimum Distributions have to be done by the end of this year. If you are 70 1/2 and older… I notified all clients back in January of the amount they needed to take out of their IRAs. The penalty is severe- its 50% of the amount you should have taken out but didn’t. Call me if you have questions.

Also! This may be the last year for preferential numbers for capital gains. If you have investment gains and losses to offset, do it before the end of December. If you have questions call your tax advisor. Call me with your investment questions or send an e-mail. Don’t wait until the last week in December.  ‘Cause it just might not happen…

Before the news of the week…expect more volatility this week, according to our friends at Talmer Bank & Trust, unless the Fed releases some ‘vanilla’ reports. They caution a defensive stance through the end of the year and into next as the U.S. debt problem still remains unresolved. Emerging markets continued to be the bright spot, losing less than domestic equities. Talmer likes emerging markets going forward as the best positioned group, even with, Talmer reports, a slowing China.

Made in America means quality, strength, durability and, maybe, to some, a cachet of luxury or of independence. Of course this wasn’t always true as those of us old enough to know not to buy a new car that was manufactured on certain days because the odds were that the quality wasn’t quite up to snuff. The NY Times in September wrote about the ‘new’ Made in America meaning; and its a far cry today from the old made in America. Products made in America cannot compete on price so companies have to compete on quality and doing business the right way. Some overseas businessmen interviewed said that doing business with American companies meant that they knew if the job wasn’t done right the first time that the American’s would re-do it until it was right. The American brand it seems is back. I just have one question, and why is my favorite brand of canned peaches now grown and processed in China?

 

Here’s a dandy piece on historical time cycles. How long, how high and how low.

Just putting finishing touches on my Inflation Breakfast Meeting Workbook-

The workbook comes in at 33 pages- filled with info you can use. What industries will be impacted by inflation- what investment sectors should you be looking at and what group will be most impacted as inflation runs and runs. This is without a doubt- my best meeting ever. You are going to want to attend if for one reason to know if stocks or bonds are historically strong during inflationary times and if not, what is. Call or e for a seat coming in February.

Toyota raises outlook even as China sales tumble. Both Honda and Nissan cut full year expectations but powered by demand for a remodeled Camry Toyota’s operating profit and sales rose in all regions. CFO Ozawa said the company has raised prices and cut costs. Toyota is set to outsell its rivals GM and VW. GM’s China sales rose 14%, including its joint venture with Chinese SAIC Motors while Ford was up 48% over the same period. Ford had basically no presence in China until recently.

Election Eve markets were quiet- positive ending but quiet.  

The New America… Europe cheered and their markets were up as the President was re-elected Tuesday.  Asia, too. For all the talk of change Americans want not of it. Wall Street correctly called this election, and I published it, back in September. Wall Street was for Romney but conceded that the president would win. On CNBC Jack Welch said Tuesday morn that a Romney win would energize the markets and create 4% growth going forward. The markets even had a little incumbent preview Tuesday with a solid triple digit gain on the Dow. One pundit on CNBC said though unemployment was at hideous numbers those that were unemployed were likely to vote Democratic rather than Republican only to ensure that they would continue to receive un-employment checks. Jimmy Cramer called the winner of the campaign a week before the election. Studio talking-heads gave him dirty looks but Cramer held his ground. The current players, such as Fed Reserve Chief Bernanke, will stay the course, (of course) printing more money well until 2015. His term is up in January, 2014 but expect him to stay for another term if asked and you can bet he’ll be asked. Jim Rogers, the commodity guru said to get ready for cheap money to run ‘amok’. ‘If the president wins expect more inflation, more money printing, more debt, more spending.’ And on the election Limbaugh said, ‘You can’t beat Santa Claus.’

Investing with the Democrats. Stocks and Sectors gathered from CNBC, MarketWatch, WSJ and other sources… Bio-tech, technology, environmental stocks (wind, solar),  retail, housing. On specific stocks: CHS, Excelon, GE, HCP, Thermo Scientific, First Solar, HealthSouth. Jimmy Cramer on Today said don’t bet on banks or that Mr. Obama will be taking calls from corporate CEO’s. Bonds, too, should be fine for the time being. Catching the Mouth on his late show Wednesday he reversed direction on banks and gave them a half-hearted endorsement. I choked on my peach cobbler in confusion….and then Thursday the Cramer said on his program that maybe Romney wouldn’t or couldn’t boost the banks any more than Mr. Obama.

 

 

Was that the ‘Collapse?’ For months talking heads have been scaring the you-know-what out of investors. The world was coming to an end if the president was re-elected. Talk show hosts, with their own agenda’s, have proclaimed the end of civilization as we know it as soon as Mr. Obama returned to office. So was that it? On the day after the election markets were petulant and fell a goodly amount- over 300 points as investors unwound their Romney bets. They also sent a clear signal to the president, if he was listening or learned anything (as he said he did). The markets abhor unknowns and if anything the previous four years was (with few exceptions) loaded with unknowns. Now Wall Street steps up and unloads by selling off- a signal that more may come-the Street wants a resolution along with immediate effort. The first thing on the agenda is the fiscal cliff.

I be bargain shopping…The fact is that the economy is on the mend. Housing is perking up. The consumer is back to spending. Interest rates are low. Inflation is also low- for a bit. It’s the politics. The debt. The huge numbers of unemployed. The uncertainty. The total lack of intelligence in Washington. The absence of leadership. The divided electorate.

Continued concerns our ‘leaders’ won’t get their respective acts together caused another down day on Thursday. Zacks reminds us that the markets are selling off for the precise reason that there is no change in the make up of our government. Mitch Zacks writes that he believes that the fiscal cliff will be kicked into 2013.  On the Eurozone Zacks doesn’t see a complete failure. If that were the case our markets would not be up this year. All well and good, still I think most bad things happen when we don’t prepare or think they can’t.

Groupon had another bad day. From an IPO price of $30.00 the company now trades under $4.00-  I was not and am not a big fan of the company or the concept (so old world!), that I see nothing attractive here. But, the company has laid off about 80 employees last week and totally lost 954 for the year. Wall Street had low expectations going into earnings and Groupon came in with even less.  Some see value but remember what is cheap can get cheaper.

JP Morgan Chase’ Dr Kelly wrote in last week’s Market Insight that the fiscal cliff not being resolved is a remote possibility. Investors with a significant investment timeline should be looking at equities as an appropriate long-term allocation, the Doctor wrote. Nothing much will change going forward as its the same old bunch we didn’t like much then and  who will be with us for another four years. There is still too much business leaders do not know and we cannot expect them to do anything until the politicians grow up and give direction.

Worst week since June 2012. Disney fell 6% last week. Hello? Reason? it missed revenue expectations. Moving in correlation is one complaint the WSJ hears from mutual fund managers that they can’t beat their index. Active managers, that is. Correlation is when a portfolio all moves up all at once and all down all at once. That’s not asset allocation but managers say that’s what happened when they mixed and matched their stocks and bonds this past year.

I’ve written that some mutual fund families have stock overlap within their funds in the same family that make asset allocation a real bummer. Another complaint from the same managers is that mediocre fund performance has been caused by dispersion, or the difference in returns between the best and the worst performing stocks. Still, folks should remember that back in the previous decade active managers trounced almost all index funds, especially the S&P 500 index. Ya’ll remember?

1987-like Crash Whispers?! Several writers penned scary thoughts of a ‘87’ meltdown. Drawing on similarities that are not there ( a cute writers trick) Jon Markham at Dow Jones goes on and on and one for a full page of itsy-bitsy print and finally as your eyes cross he finishes, ‘….I don’t think this will happen…’ It was Friday, it was slow news and he had a deadline.

UK Banks show thin capital levels, according to Morningstar. The Bank of England has urged banks to raise additional capital. Morningstar reports profits at UK banks will be weak for the near future. The most attractive of the banks, even including its exposure to Scotland, is Royal Bank of Scotland, at today’s prices, according to the analyst at Morningstar.  Lloyds, they report, is the least attractive.

The Washington Post reported on election eve…That neither the president nor the governor could or would turn the U.S. into a bleak financial hellscape. Both, the Post wrote, believe in the genius of free markets, the necessity of a federal safety net and the importance of a strong military. The records show, according to The Post, that both men govern prudently, analytically, and honorably. If that’s the case tell me why I stood in the cold for forty minutes to vote last Tuesday?

Finally, according to Bob Schieffer of CBS News the President didn’t get a mandate but a second chance. We all hope he understands the difference.

Questions call Paul @ 586 783 7080 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money. Call or write if you have questions about upcoming breakfast meetings or investment accounts.