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.