That Was The Week That Was-3rd Week May

 

 

Devaluation of Money versus Inflation- What’s the Difference?

 I was having coffee with several clients a week ago and one of my clients said he had heard that the Chinese were attempting to persuade the IMF to label the Yuan as a reserve currency. Once this happened, my friend said, the U.S. dollar would be devaluated by 40% almost immediately, and anyone with ‘regular’ investments and savings would see the purchasing power of their money gone by that much. What could he do, he asked, to preserve his money when this happened?  Devaluation is not something new or altogether bad. In the 1930s nine world economies devalued their currencies, including the United States. This revived their economies hit with a global depression and stabilized currency rates. At the breakfast meeting my friend was saying that he heard that if he had $100,000 in the local bank and one day he would wake up only to find his $100,000 being able to buy only $60,000 of goods and services; or worse, the bank would only hand him $60,000 of his $100,000.  What my client is afraid of is a massive devaluation of the dollar overnight and losing all his savings. While that is not likely we are seeing countries make their ‘currency’ cheap versus their neighbors for the benefit of their exports. A cheap yen makes selling a Japanese car easier than a Mustang made in Detroit. A country, through its central bank, can do this by issuing more of their currency and buying that of their neighbors. (Remember this is called ‘Beggar Thy Neighbor’ from the 1930s devaluations). The average citizen of the country that is having their currency devalued is the one that feels the pain if they want to buy products from another country that has a stronger currency. The producer of a product with a country that has a strong currency loses money when the cost of their product in dollars is sold in another country with ‘cheaper’ currency. Nations prefer inflation to deflation; and countries try to have a ‘modest’ amount of inflation per year. A central bank can create an inflationary environment by raising interest rates and also by increasing the amount of money into circulation. Either too much of either can cause citizens and a country enormous pain. Currently the U.S. dollar is strong against those countries that are trying to dig themselves out of a global recession. The following illustrates how a company from a country with a strong currency suffers. (chart WSJ 1/27/2015)

You do not want to own cash in a severe deflationary environment.  The argument for what to do with a depreciating dollar due to inflation makes a case for financial experts to recommend that investors buy commodity investments such as precious metals, oil, invest in emerging markets, buy Treasury Inflation Protected Securities; and short the fixed income such as the 20-year Treasury. (As interest rates rise principal decreases and the short investment through an ETF covers that strategy). Call me if you want more information.

Reserve Currency Definition. A foreign currency used by central banks and other major financial institutions as a means to pay debts and buy goods. The IMF defines that currency to be freely useable. The U.S. is recognized as the king of currencies and represents 60% of all global currency reserves. Other currencies are the euro and the yen. Oil internationally is traded in dollars. Another reason why oil is priced so low as the dollar is stronger versus other currencies.

 

UNSTEADY RECOVERY

A weak economy suffers whenever something happens that could be shrugged off in an economy moving at moderate speed. One at snail’s pace slows whenever a bump happens in the road. Bad weather, the west coast port strike, political strife, overseas disruptions; all contribute to a first quarter that has had difficulty moving forward. This gives pause to the Federal Reserve to raise rates this June, even possibly September. The other problem is that in a slow growing economy and you are unable to grow at 3%-4%; the Fed doesn’t have room to cut rates in response to a downturn if one actually occurs.-James Stock, Harvard University economics professor, WSJ 5/18/2015

 Investors either are nervous or blasé about the performance of their investments.  There are clients who examine their statements and shrug off small losses and others who want to know the how, when and why those losses occurred and what can be done to stem any future tide. The Bull Market celebrated its 6th birthday last March and is showing its age. Still Monday the Dow surprised us with a new high as did the S&P 500 Index. The Naz and Small Cap Index were also big gainers. Bob Doll at Nuveen Asset Management urges investors to be patient in an Barrons.com article published May 18th. Doll writes that earnings will drive the market higher but the current outlook for earnings is troubled. He goes on to say that he is not pessimistic and believes earnings will rebound and the economy recover. He is still in the Bull Market camp.

 

RMD FOR THOSE 70 1/2 PLUS. GET FORMS AND INFO BY CALLING OR E-MAILING ME.

 

Budget, Please! Those about to retire should sit down and do a budget. I’ve preached this for years. Know where you are and you’ll do better than if you don’t know. Most retirees think they’ll not spend as much money when they retire because they’ll be in a lower marginal tax bracket. Some think they’ll spend the same. The real savings will come from (1) Not paying a payroll tax (2) No retirement plan or HSA contributions (3) The odd dollars spent on work-related expenses: dry cleaning, lunches, and the strange evaporation of five dollars a day as soon as you walk out the door. Do a budget before you retire and you’ll feel better knowing.

 

Ya Gotta Wonder… Jack Bogle appeared on CNBC Tuesday and said there’s a lot to worry about…meaning the market. Then he gave confusing testimony. He explained that this was a hard time to invest since the options were limited. Stocks were high, and they can’t stay that way forever. I assume he meant that they could go down, and then he said he has lived with,’I think four 50% declines’, were his exact words. (I looked for 50% dips over the past 100 years and couldn’t find them.)  Bond yields were extremely low, Jack said, and it’s wise not to buy long-term bonds. The 86 year old then went and said that thought stocks were ‘fairly reasonably valued” if you take their earnings yield into account. So I gotta ask…   If you listened he gave two opinions. That’s confusing. The guys an icon, I get it, but here was a typical stock sales pitch calling it either way. Either you are or you’re not. No one from CNBC asked a question. Jack gets a pass from Talking Heads simply because he’s Jack. Power Lunch CNBC 5/19/2015

 

40% of All Unemployed Have Simply Given Up. CNBC 5/20/2015

 

Stocks Fell Slightly Wednesday. The markets briefly spiked up on news that a June rate hike was ‘unlikely’ Wednesday but then settled back and closed down. Transports fell off their highs. IBD reported that the Fed is worried about volatility once rate hike starts. THURSDAY mixed markets closed even as investors digested no likely rate hike in June.

Markets Closed Monday For Memorial Day- Remember what the day is for, to remember those who died while serving in the country’s armed forces. It was originally called Decoration Day and originated after the Civil War to honor both Union and Confederate soldiers who had fallen in the war. In 1966 President Johnson signed a proclamation naming Waterloo, New York, as the birthplace of Memorial Day. Wikipedia.org

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

Securities Offered Through Westminster Financial Securities, Inc. MEMBER FINRA/SIPC.

That Was The Week That Was-2nd Week May

 

 

TAPER TANTRUM?

 

  Ward McCarthy, chief financial economist at Jefferies, said Monday, that the bond market was getting beaten like a rented mule. It could get real ugly not only for bonds but for all assets if the bond  markets continue to spike and this is the ‘end to easy’ money, he said in a Barrons.com article. George Goncalves, head of equity strategy at Nomura, said, ‘..if this is the end of easy money, low long-term rates interest story and the Fed is not going to be able to hike, the long-term interest rate market is going to do the tightening for the Fed…’ On Monday Treasury yields went higher, putting pressure on stocks. The Economist reported May 6th a similar situation in the European markets. Barrons.com reported May 11th in Michael Kahn’s ‘Getting Technical’ column, long-term Treasury yields is the potential kryptonite for the stock market.Traders in the futures pit in Chicago said that the bond moves were similar to ‘a global margin call.’ As interest rates move up principal falls. If traders are using leveraged money, and cheap money, to facilitate what is called a ‘carry trade’, we could see a rapid and ugly unwinding of all assets. Markets closed off their lows on Monday. Sources, WSJ, Barrons.com, The Economist, CNBC.com 5/11/2015

Tuesday Markets Fell 100+ points at The Bell as a Carryover From Monday but Recovered Most of the Loss & Closed Off 38 Points on The DJIA.

WSJ Reported in ‘Markets’ Many Investors Still Bullish on Bonds.  The most recent selloff isn’t believed to be sustainable because of ‘tempered economic expectations’, and more balanced positioning by traders.  Still many bond investors believe the turmoil will be contained this spring despite volatility. A $24 billion sale of 3-Year Treasuries Tuesday drew the strongest foreign demand since 2009, and demand from U.S. investors also increased. 5/12/2015 WSJ

 

Better than expected Jobs report sent markets soaring Friday the 8th of May. It was a Goldilocks report- not too much and not too little. Enough to move equities but not enough to suggest that the Federal Reserve would be raising rates in June, or possibly September, Coming off an abysmal March number the Labor Department said that employers added 223,000 jobs and the unemployment rate fell to 5.4%. NY Times –economy – 5/8/2015.

Bob Doll,CFA, Nuveen Asset Management, Senior Portfolio Manager, appearing on Squawk Box, CNBC, May 8th; ‘Expect Choppiness & A Confusing Time… Going forward the market will only go higher based on earnings…’

MORNINGSTAR reports it could do better and asks for help:

Morningstar announced that its ‘Style Box’, used by professional and amateur investors for decades, may not be ‘stylish’ in today’s investment landscape. For decades Morningstar preached that allocation using the above style box was the only way for investors to manage their money. Now the firm says that while the style boxes, since 1992, were essential tools that it was only a ‘nice’ simplification. They’ve reached out to the investment community to help redesign their ‘style’ diagram for future use. Investment News May 4-8 2015.

Amateur and professional investors sometimes get carried away with ‘uber-sophisticated’ methods and forget basics.

 

Charlie Munger, partner of Warren Buffett, Berkshire Hathaway, keeps things simple for today’s investor. Munger is a lawyer, well respected value investor, philanthropist and Vice Chairman of Berkshire Hathaway Corporation. You can do far worse than read the wisdom of Charlie Munger.

• Buy quality over value.
• It pays to wait. Sometimes the best thing you can do is nothing.
• Know what you want and build a checklist.
• Keep up to date on developments around the world.
• Understand basic math and compound interest.

Poor Charlie's Almanac The Wit & Wisdom of Charlie Munger/ Amazon 

MISSING THE 10 BEST DAYS OR 30 BEST DAYS OUT OF 10-YEARS. WHY SUCCESSFUL INVESTORS DON’T TIME THE MARKETS.

Monday China Announced Third Interest Rate Cut in Six Months. According to Mark Williams at Capital Economics, this is not the end of policy support. He expects a further reduction before the end of 2015. He also expects China GDP growth at around 7%. WSJ 5/11/2015

 INVESTORS DOUBLE-DOWN ON SPRING TURNAROUND. WSJ 5/14/2015

Investors are piling into oil, commodities and trimmed their bets on the dollar. As the dollar soared commodities fell and those assets are now in the crosshairs of investors who are betting on their rise.

According to WSJ expect the rally to continue to September when rates are expected to be hiked by the Federal Reserve.

 

TIMING THIS MARKET IS A NO-NO. The average investor shouldn’t be timing any market but some do with disastrous results. Consider how the week before ended, the new week started and finally what happened on Thursday as markets ripped higher almost 200 points on the DJIA. Here why investors should stick with their diversified investment plan: (1) American unemployment remains at a 15-year low. (2) There is little to low inflation. (3) Interest rates remain at historic low rates. (4) The jobs market is strengthening even as the economy somewhat struggles. (5) The dollar is slipping. (6) Europe is strengthening. Finally:There could be a 5%-10% correction but experts contend that this market could be 8% higher by the end of this year. The correction should be looked at as a ‘Buying Opportunity’.  Sources: BloombergBusiness 5/14/2015 (Improving Jobs Market), MarketWatch.com 5/14 (Jobless Claims Cling to 15-Year Low), CNBC, 5/14/2015 and  David Darst on the Closing Bell 5/14/2015

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

SECURIIES OFFERED THROUGH WESTMINSTER FINANCIAL SECURITIES, INC. MEMBER FINRA/SIPC

That Was The Week That Was-1st Week May

 

Sandy Cutler, CEO of Eaton Corporation, speaking on Mad Money, CNBC, May 1st, provided a report card on the state of the U.S. economy. He confirmed that residential and non-residential construction, aerospace, cars and truck sectors are very strong. Non-residential construction is a large source of hiring in the U.S. and lower oil prices have driven a lot of jobs to that industry. Also, truck sales in 2015 could be 300,000 units. Manufacturers build trucks only because people need them. Only one sector of the economy seems weak and that’s retail. (The American public is not spending their gas pump savings as much as the experts predicted.) Mad Money 5/1/2015

 

 Target Date Funds are the investment du jour (default) for most 401k plans. Investors who either neglect or are unable to choose an investment when they sign up for their employer sponsored retirement plan often are automatically enrolled in a Target Fund that most approximates the year when they would ‘normally retire’. Target Date Funds are also a good choice for people who don’t want to think about investing and simply want a‘set it and forget it type savings plan.’ While certainly better than going to cash or short-term bonds as a default investment, investors should know there are certain cautions when owning a Target Date Fund. Target Date Funds vary from company to company even though all have identical named products that ‘mature’ at the same time frame. A Retirement 2020 Target Date Fund with ABC Funds one would think should be no different than Retirement 2020 Target Date Fund with XYZ Funds; but, in actuality could be widely different in the way it’s managed. Here’s a few things you should know about the product:

Target Date Funds are an all inclusive money management plan that should be invested,not as part of an investment plan, but as the complete investment plan.

Each Target Date Fund is managed differently and may be more or less risky than an identical  dated Target Date Fund with another management company.

The longer one holds the fund the more percentage of the underlying investment portfolio becomes fixed. This increases the risk of the investment to rising interest rates.

Target Date Funds can and have lost significant amounts of money. In 2009 Target Dated Funds lost on average 25% according to Kiplinger Magazine.

While not the investment panacea that some financial experts tout these funds will provide professional management, a decreasing equity risk profile, and a lifetime management even past their ‘retirement’ date.

Made me smile…

 

 

In 2009, Paola Sapienza, associate professor of finance and the Zell Center Faculty Fellow at Northwestern University and Luigi Zingales pointed out: As trust declines, so does American’s willingness to invest their money in the financial system.

Americans unwillingness to trust institutions and businesses that will personally benefit them reflects in the confidence they have in a future comfortable retirement.

Employee Benefit Research Institute has published the 2015 Retirement Confidence Survey and discovered the numbers have rebounded to 22% of Americans are now confident about their retirement. Previously in 2014 only 18% of those survey were confident in a comfortable retirement. (note in the 1990s 51% were somewhat confident versus today’s 36%.)

More info go to the website at EBRI Retirement Confidence Survey 2015.

 

Sell in May & Go Away?  

Considering how unexciting the first four months of 2015 have been traders may well want to hold-off their long cherished tradition of ‘selling in May and coming back in November’. Bob Pisani at CNBC confirmed that from May to October the S&P 500 Index was positive 65% of the time and while the November to April period was up 85% of the time over the past 20-years. The latter period handily outperformed the former 6-1. CNBC May 1, 2015

 

IBD REPORTED May 5th that Sam Stovall at Capital IQ U.S.said that Investors should not sell in May but rotate instead to small cap health care and consumer staple stocks. They rose on average 2% during this period. If you were sitting in cash or money market this would be far more than you’d earn there. INVESTORS BUSINESS DAILY 5-5-2015

Yes, Virginia, There is Inflation!

Inflation at the grocery and retail stores is being manipulated and hidden through slick packaging games. Packages for many products are getting smaller (thinner actually) while prices stay the same. Clothes, at some manufacturers, are shrinking in size and quality while price hikes are modest.

Tony has lost some size.

Pullups are 5% less.Bounty is missing sheets

1 pound hot dog pack is 15 ounces.

10% less.

Two pounds lighter!

Just a few I found and you can do the same by googling inflation and seeing your favorite potato chips, peanut butter, clothes soap and other goods downsized. I found these and more at Mouseprint.org.

 

Excellent News! Factory Orders Rose Commerce Department Said May 4th. New orders for manufactured good rose 2.1% in March. Durable goods, autos and computers rose in March for the second time in three months. Markets up for the Monday.

 

 

Trade Deficit Slaps Markets!

Tuesday markets cratered when the U.S. Trade Deficit came in at the highest level since 2008. It was up 43% in March. In dollar terms a seasonally adjusted $54.1 billion in March from a revised $35.9 billion in February, the Commerce Department reported May 5th. Before you get all excited you should know that the main culprit is that the West Coast ports got back to business after an extended strike and imports surged. Still there were those that worried that a strong dollar was making American exports too expensive while encouraging imports. Barclays Capital economist Jess Hurwitz wrote, ‘we do expect the net trade balance to drag on overall growth over the next several quarters.” Americans are consuming more and the dollar is stronger. BloombergBusiness 5/5/2015.

Sideways Market? Sure looks like one. Having a portfolio that is comprised of dividend paying stocks is a great way to weather a sideways market. An investor doesn’t have to do anything fancier than sit and wait while getting paid.

 

Fed Chief Janet Yellen Called Stocks OverValued  Wednesday & Verbal Fist-a-Cuffs Broke Out & Markets Swooned. Yes, dear reader, Janet Yellen gave an opinion on what she thought of the stock market and lots of traders and investors took it to heart that she knew what she was talking about. The DJIA was having a so-so day before her words were heard on the Street and by the time you could say, “ Where’s The Ben Bernanke?’, the markets were off triple digits. The noise got so heated between those that said markets were fairly priced and those that agreed with Yellen, that CNBC almost had a fist fight on-air, except the two guys were split screen and miles apart. Cramer came on the air later in the day and scolded the Fed chief saying she may be good at running the Federal Reserve but ‘she’s no portfolio manager’. In fact, Yellen did say that while stocks were overvalued that they were not in relation to bonds. Markets later came slightly back and the Dow closed off 86 points and the Naz was even for the day. Sources CNBC.com, CNBC, WSJ., Bloomberg.

Alan Greenspan, the former Federal Reserve Chief, once commented about irrational exuberance in the markets and it took four years before the collapse.

Thursday Markets Bounced Back- Ignoring Yellen.

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

Securities Offered Through Westminster Financial Securities, Inc. Member FINRA/SIPC.

That Was The Week That Was-4th Week April

 

 

Spring Cleaning…

  This is a good time of the year to check out what investments you own and make sure they are in-step with today’s global economies. The conservative investor, who has owned nothing but bonds and cash, may find this a bit disconcerting but with rising interest rates will find more risk and pain than someone who uses a world growth-income strategy. The danger of being concentrated in a bond-cash investment plan, with rising rates on the horizon, is that principal value falls as rate increase. Inflation erodes the buying power of savings. Even a small rate of 2%-inflation eventually will crush those who do nothing but use bank savings as their only retirement plan. Conservative investors, who confuse safety with fixed investments, may well be taken advantage of as they become more desperate for earning more on their money. An April 24th Bloomberg News article reported that the most worrisome investments that were being sold to this group were structured products, non-traded real estate investment trusts (REITS), variable annuities, and alternative investments including leveraged-inverse ETFs. Bloomberg.com Financial Advisor 4/24

 Non-Traded or Private REITS (Real Estate Investment Trusts) Have Some Serious Issues. Many financial magazines, experts and even FINRA, have criticized the buying of Non-Traded REITS as an income producing asset for today’s retiree. FINRA is so concerned about the business of non-public REITS being purchased by retirees that it has issued an investor alert saying that these products are illiquid and expensive. Don’t let a sales talk from a  broker convince you that what you are buying is safe and of the highest quality. Most high quality non-traded REITS are quickly bought by institutional investors before they even get to the average retail customer. Here are some other things to consider:

• High expenses. The salesman gets up to 10% of the investment as a commission. Other REIT expenses eat up returns to investor. There may only be 70 cents of the customer’s dollar net of expenses invested.
• Many non-traded REITS have decreased their yield in the last year.
• Distributions are not guaranteed.
• Some Non-traded REITS have lost value but the investor doesn’t know it.
• They are illiquid.
• You cannot get a current price as you can on a public REIT. Not knowing where you are spells heaps of trouble down the road.
• Some REITs only provide Par Price of $10.00 in their investment reports which may be far higher than the actual market price of shares.
• Returns to the investor may actually be subsidized by borrowed funds or the return of the investor’s own money.

Source Forbes.com, AARP.com 1/12/2015, FINRA.org

You Can Asset Allocate & Be Diversified but You Can Be Diversified & Not Asset Allocated- Asset allocation is owning a variety of different investment sectors (Cash, Fixed, Equity), that act differently during specific economic times. Diversification is not having all your eggs in one basket. You can own several bonds and not be asset allocated but you will be diversified in case one defaults. An individual diversified investment portfolio may contain as little as 10-15 individual holdings.

 

 

Barrons.com conducted 4/25 a Money Managers Poll: Most Managers Have Reined in Their Optimism Since The Fall, But See Bargains in Europe, Tech, Energy.

Note that nothing was reported on an economic tsunami lurking over the horizon. Charts Barrons.com 4/25/2015

Dan Wantrobski, technical analyst at Janney Capital Markets in Philadelphia, says, ‘The expansion cycle has much further to run. Demographics point to a coming boom, as the 90 million members of the millennial generation approach family-formation age and start looking to buy and furnish homes. Moreover, the stock market typically peaked at P/E multiples much higher than today’s.” Barrons.com April 25 Barron’s cover.

  Money Managers who correctly foresaw the 2000-2002 market meltdown say U.S. stocks are less risky today. Reason- high inflation and interest rates are not at the levels that killed bull markets in the past. WSJ ‘Why This Old Bull Market May Not Be Ready to Die’. 4/26/2015

 

Bob C. Doll, CFA in Weekly Investment Commentary 4/27/2015:

• Earnings are exceeding lowered expectations, but energy sector remains a drag
• Fed rate hikes will begin in September (We believe).
• Global monetary policy remains in an easing mode.
• Both global growth and corporate earnings should slowly improve over the coming months and quarters,
• Equities face several risk, which should cause volatility to advance, but we expect prices to continue to rise.

 Planning a Vacation? Make it a combo package of work and fun. Explore the fields at Crater of Diamonds State Park in Murfreesboro, Arkansas. It’s a state park where a volcano has sprinkled the entire area with precious gems and you get to keep what you find. So far this year 122 diamonds, yes, diamonds, have been found. The latest a gem of a gem weighing in at 3.69 carats. More than 75,000 diamonds have been discovered on this bit of land since 1906.

SAVING THE WORST TO LAST: MARKETS FELL THURSDAY AS BETS THAT WORKED EARLIER BACKFIRED.- WSJ

Here’s what the WSJ (May 1st) wrote: The rapid ascent in global stock and bond markets has stocked worries about pricey valuations, making them vulnerable to a selloff. A slowdown in U.S. growth, a brightening outlook for Europe, pockets of resilience in Chinese demand and rapid cutbacks by U.S. shale-oil producers are just some of the surprise factors behind the turnabout across stock, bond, currency and commodity markets.

‘For investors, the reversals highlight how quickly markets can swing, especially when many traders have piled into the same bets.’-WSJ

Bob Pisani, CNBC, in ‘Trader Talk’, reported that investors should remain calm despite a poor end to the month. He wrote that the three trades that had been the biggest winners in 2015 were: long the dollar, long Germany and long healthcare, particularly biotech.

‘These are what traders call ‘crowded longs’, that is, a lot of traders have bought into these trades and are sitting on a lot of profits. All three have come unwound a bit this week.’

Finally: Dennis Gartman on CNBC, said he thinks a 5%-8% correction is in the cards and investors should brace themselves because things could get ugly. ‘It’s not going to get ugly bad; it’s not going to get ugly for a long period of time. I think it’s going to get ugly swiftly and I think it’s going to make a lot of people very nervous.’ Gartman publishes The Gartman Letter and was speaking on May 1st Closing Bell, CNBC.

QUESTIONS, CALL PAUL @ 586 295 0430 or WRITE HIM @ pstanley@westminsterfinancial.com. Share this blog with someone who cares about their money.

SECURITIES OFFERED THROUGH WESTMINSTER FINANCIAL SECURITIES, INC. MEMBER FINRA/SIPC.