That Was The Week That Was-4th Week March

 

The EU tax on Cyprus Bank Depositors That Was Supposed to Ignite A Second Scary Recession Didn’t Faze US Markets Last Monday. It was supposed to be frightening news coming from Europe that translated to a US market meltdown, which didn’t happen. What did happen was just the opposite with several dyed in the wool Bears coming out for the US economy, and especially the stock markets. Meridith Whitney said on CNBC that she’s never been this bullish in her career on US equities. Adam Parker, from Morgan Stanley, tossed his two cents into the Bull Ring. A Bear from way back, Parker, a recent Bull convert, said, markets are fairly values but sees more room to run in 2013. I’m hearing too many happy feet to be comfortable with any run longer term  before a predictable pause.

On Thursday the Cyprus Situation Continued to Fester. Global Markets fell on worries of contagion. Our DJIA was off 91 points. On Friday the Cypriot PM left Russia, empty handed, saying there was no bailout from the Russians but felt certain that a 2011 euro loan of $2.5 billion that the Russians carved would be restructured. The Russians were asked for an additional $5 billion euros but the Cypriots were turned down by the Russians saying they were not interested in loaning but could be an investor in the Cypriot energy industry. The country is a huge natural gas supplier to the region. 

Friday Markets Bounced Back with the S&P closing at 1567 as news of the Cyprus Legislatures Passing a Bill to Secure an EU Bail-Out. Gold down but closed above $1600 and oil just a tad shy of $94. a barrel.

But…as of Sunday things were still uncertain. According to Bloomberg the EU has had an entire year to avoid problems in Cyprus and only now addressing them with a cockamamie idea of having bank depositors pay for a bailout. The Russians are expected to bail the Cypriots out but dragging their feet. The five billion would ensure them of rights to explore Cyprus waters for additional energy reserves. If the banks in Cyprus fail Russia could lose about $60 billion.

Monday all is well as a deal with EU and international lenders was announced along with a restructuring of the country’s banking system. Alas, we don’t care about the details including the break-up immediately of one of its banks. The cost of the deal was reported this morning to be in the neighborhood of $13 billion.

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The U.S. Economy, so far this year, Has Ignored higher taxes, a lousy winter, a Sequester, Cypriot and EU troubles and rather fragile payroll numbers. Growth is percolating at an average of 2.2% up from an estimate 1.7% in January. This really goes to show that we could fire every elected official in Washington, DC  and do just fine, thank you.

Our Friends at Talmer Bank & Trust, Timothy A. Bassett, CFP, writes, ‘ US equities still remain attractively priced whereas European equities have been less so collectively.’

Next Week is relatively quiet with consumer sentiment being released Friday. Most markets will be closed Friday. The following week will have more macro data and employment numbers.

 

Something is seriously wrong the way most financial planners coach retirees to view retirement income on their savings. There was an article in Reuters, by a financial planner, that advocated that most retirees would be better off taking 4% of their savings as income to start and increase that amount each year by the amount of that year’s inflation. (Yes, he wrote Most so that means more than just a few or a couple. It means more than a consensus. It could mean a 2/3rd’s majority.) So the second year with 2% inflation the retiree would withdraw 4.08%, and if the same numbers repeated the following year they’d take 4.16%, and so on and so on.  In this way there was almost a 100% sure success rate of the retiree dying with principal intact. They based this on someone being able to save $500,000 and using $20,000 the first year for income. The assumption, mad as it is, is that someone could save $500,000 and secondly, wanted only to live on, or only needed to live on $20,000. What if, I wondered, if you didn’t or couldn’t save a half-a million and needed more than $20k to live on. For example, about 20-years back Joe Flak called me and his aged father was in a rest home and needed $20,000 a year to pay the bills, only the father had saved a grand total of $90,000. The then stock broker had suggested investing the money in a bond fund paying about 2%. Doing simple math I figured that the broker’s plan would end up getting the aged father kicked out of the rest home and into the kid’s care in about 4  years. I suggested to get aggressive with the investment monies and earn as much as we could as prudently and smartly as possible. The family agreed and we managed that fund for 10-years before Dad passed and the family still had $50,000 left in the account. Over the years the cost of care increased but the family never had to reach into their pocket for a penny. The morale is that most planners are wrong because they view retirement income and preservation of principal as two sides to the same solution. It’s been my experience you can do one but not both with any  degree of success. Income Plan Design needs to be fitted to the individual and specific need. No one size fits all here, and that’s the problem for those preachers. The other thing is who’s saving principal for whom?

Slow Growth BRICs being abandon as investments by locals. According to Bloomberg the confidence of investors who live in BRIC countries are tossing in the towel in their local stock markets in droves. This is happening in India, Russia and some U.S. experts are forecasting the same soon to happen in China and Brazil. The four country MSCI gauge fell 1% so far in 2013. This while our markets are enjoying double digit returns. Investors in BRIC nations explain ‘they’re scared.’ In Brazil some investors complain about government intervention causing their investments to tank. In valuations some 59% of the companies in the MSCI BRIC index earnings trailed expectations. Today BRIC shares trade at their cheapest levels versus global equities since July, 2009. Some analysts expect that now is the time for a rebound.

Not Enough Savings In US Workers Retirement Accounts.

The bad news is that 57% of the workers have less than $25,000 in their total household savings and investments, not counting their homes. In 2009 49% of all workers were so inclined. There appears to be a crisis of confidence in the markets, and the ability to save. Life span’s have increased both for men and women, which doesn’t bode well for the amount of money saved. The percentage of workers who are saving for retirement has plunged to 66% from 75% in 2009. Much of this stems from workers not getting equal or better jobs. Many have either stopped looking, taken early retirement, fallen off the grid, for lack of a better word. These are people no-longer being counted on any survey.

Confused? That simply means you’ve been paying too close attention to what’s been happening in the markets. For every Yea there’s a Nyet. Good news begets bad and vice versa. Bloomberg reported Monday that the S&P 500 index is at its lowest valuation since 1980. Still the average investor is not having it with only $20 billion in additional in-flows this year that’s only 3.5% of the total withdrawals since 2007. Institutions have been the main beneficiary of a market resurgence. In 1980 the index traded for 9 times earnings. Cyprus woes weigh. It’s not so much Cyprus but the banking institution on trust and confidence that’s at stake. Cody Willard has concerns over the financials and asks readers to do the same over the next several weeks. Oliver Pursche believes the S&P 500 will reach 1600 this year (closing at 1548 Tuesday). That almost certainly guarantees some sort of a pullback before moving higher. He believes the markets are ahead of themselves and there is some sort of short-term period of volatility.

Clients who could not/did not attend the Client Inflation Breakfast Meeting will be getting a workbook after as part of my 2013 Client review.

New Phone Number- Please note and I’ll be sending business cards in the next week or so. The new phone is listed on my web site, on my e-mails and now here it is- 586 295 0430.

 

I hate Rumors and won’t answer Qs that have to do with anything unsubstantiated. In other words don’t ask me, ‘What if…?’ That’s something that involves guesswork and serves no significant purpose. (Whew!) Now – Apple is rumored to not only raise its dividend but to increase it by 50% to shareholders. I’ve always poo-pooed a raise in the dividend as a savior but fifty percent?! Holy iWatch, shareholders! That could well boost current share price from where it’s at all by itself. The cool thing is that the increase probably won’t cause any extra lifting or selling one more iPhone since Apple has about $140 billion in cash and investments and just the earnings on that pile could sustain it.

Are The Financial Stocks Toast? Last week a load of investors ran to the Exchange Traded Fund that shorts the financials as some think the party is over with banks, insurance companies, credit cards, et al. Besides the shorts where to? Eric St Cyr writes that the rotation is into the Techs. That’s that wonderful place where you have Google, Apple, Linkedin, Cisco and other wonderful companies that probably have more money in their coffers than do the financials. Just kidding, no one has more money than the financials.

The Federal Reserve Did Not Change Language or its Perspective of the US Economy from a few months back. In fact, the Fed was slipping a horse apple into the economic punchbowl by stating, ‘…thanks to the sequester fiscal policy has become more restrictive and continues to see downside risks to the economic outlook.’ Still the markets ignored and continued their climb although the Dow did slip for the week, according to the WSJ.

Health Insurers Are Not So Privately Whispering Higher Premiums are Coming… The problems arising from the complications of the government law coming into effect in 2014 and the role of government subsidies. Yes, dear friends, the middle-class will be supporting lower income families or other wise un-insured’s premiums. While there is a caution that some carriers could lower premiums for certain insured’s (not certain who), most agree that the scenario calls for higher rates for small business and individuals. How high? United Healthcare offered up increases that could go up as much as 116% of current premium. A spokesman for United said that number represented the high-end and not an average. Aetna said that its premiums could go up on average 55%. On both inflation was factored in at 10% of premium. 

If you have not received your 1099’s or Year-end Tax Documents make sure you call me. A client who was supposed to receive a tax statement did not. It was posted on my client view but for some reason she did not get the paperwork.  

Finally, Enjoy.

Questions call Paul @ 586 295 0430 or write him at pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

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