That Was The Week That Was-4th Week July

 

REBALANCING INVESTMENT PORTFOLIOS

 

 

 It’s like you’re rotating car tires or flipping a mattress, you are not exactly sure why you’re spending the time and money doing it but you’re doing it because someone said you should. Rebalancing of investment portfolios has been a ‘must-do’ for several decades. It is stressed so strongly by so many financial/investment business that if you do not rebalance on a ‘regular’ basis your entire investment, according to some experts, is susceptible to increased risk and worse possible portfolio meltdown.  Rebalancing is simply to keep your investments within their ‘original’ investment design or risk parameter. The concept has been lifted to one of the premier commandments of investment management. Almost every investment firm and product has some set rebalancing program. If you own a 401k plan there is probably a choice for you to check to ‘rebalance’ once a year or quarterly. If you own funds at a mutual fund company they may offer ‘rebalancing’ as one of their non-qualified services. Unfortunately some of the biggest individual investors are not fans of rebalancing or of asset allocation. For the average investor in order to rebalance they would need to sell their winners and buy more of their losers. Two things may happen: (1) Increased cost of the trade (2) Possible taxable event if rebalancing was done in a non-qualified portfolio. The other bad thing that could happen is that the losing asset could continue to lose for another quarter or year, exacerbating the portfolio losses. Following the rules you’d be pouring more money in year after year.

A simple way to rebalance without all the buying and selling is to simply check the overall risk of your investment portfolio and see if it is in the neighborhood of your original risk number. You keep track of your combined investment portfolio risk/volatility number, or Beta. Assume you want to keep risk at market and so the Beta would be 1.00. A check of your holdings, once a year or quarterly, and see how they may have changed is all you need to do. As long as the ‘average’ Beta is at or close to market risk you do not need to do anything. If, however, the entire portfolio risk has increased substantially you may want to sell some of your higher risk (Beta) investments and buy more of your lower Beta funds. The investments you buy and sell may be winners or losers. It doesn’t matter because you are concerned with volatility and not keeping individual investments in specific percentages. If one investment increases risk by 20% and another decreases by 20% it all evens out. You can find the Beta of all investments online at Google finance or Yahoo finance. plus other sites including Morningstar.com. Call me for more information regarding your specific situation.

IRS & Treasury Say Nyet on Firms That Force Retirees to Take Lump Sum or Insurance Company Annuity Income After Getting Pension Income. We in Detroit saw this recently as retirees receiving income checks for years, some for decades, were forced to chose either a lump sum or insurance annuity income pension. No longer says IRS & Treasury. That doesn’t mean that companies that have the language cannot do it. For most retirees it’s not to their advantage because of new fees – expenses and possible loss of spousal benefit. Thinkadvisor.com 7/13

 

Made me smile… 

New Yorker

 

 

The difference between me and a rocket scientist: They can take a rocket the size of a piano and send it 3,000,000,000 miles into space and hit a specific spot in the universe and I can’t send a golf ball straight for 200 yards.

 

ARE YOU A TRADER OR LONG-TERM INVESTOR? Jamie Dimon, CEO, JP Morgan, said not to worry about Greece or China or anything we’ve seen in 2015 because they won’t really change the investing world much. What Dimon understands is that there is no real link between specific disastrous events and the performance of the stock market. The Greece economy, measured by GDP per capita, is comparable to that of the state of Mississippi. MARKETWATCH.COM 7/16/2015

 

Hi- Yo. Gold! And Away! Both a commodity and a currency gold has taken on hard times. The yellow metal has fallen approximately 39% off its highs back from August, 2011.Jason Zweig, in the WSJ’s Intelligent Investor, wrote that unlike other financial assets gold generates no income. Therefore valuing it is virtually impossible.The following chart shows how far the metal has fallen in recent times. Zweig answers the question how much gold one should own? Based on the total value of all the world’s financial assets at the end of 2014: $102.7 trillion. The World Gold Council estimates the total quantity of gold was about $1.4 trillion. As an investor you would allocate 1.3% to gold. Anything more is ‘a leap in the dark’. WSJ 7/18/2015 Intelligent Investor

 

 Gold Still The Non-Story Story as Technical Analyst Michael Kahn at Barron’s ‘Getting Technical’ Calls Gold ‘A Falling Knife’.   The Trend is Down. Chart Published 7/20/2015 Barrons.com

The Reasons For Gold Major Meltdown? Myra P. Saefong at MarketWatch.com 7/20/2015:

• Reduced Demand for Defensive Havens.
• Reduced Need for Inflation Hedges.
• U.S. Interest Rate Liftoff and U.S. Dollar Rally.
• China forex reserves and percentage has not grown in 6 years.

 

Major Things Are Happening in Corporate America.

From Share Buy-Backs to M&A and Strategic Break-Ups Instigated By Activist Investors There are Things Afoot in the Corporate World Investors Should Be Aware Of. There have been stock splits and spin-offs. Some may be of benefit to investors for the long-haul and others be avoided. But be aware that opportunities are being created. Activist investors are not like the corporate raiders of old but initiating corporations to explore share buy backs, cost cutting, adding new blood to corporate boards, returning cash to investors or splitting off divisions to increase value. Sources Various from CNBC, WSJ.

It’s a ‘What Have You Done For Me Lately,’ kind of world. Stocks fell Tuesday, across the board, as  several large Blue chips reported lack luster, or downright ugly, earning numbers. Over the next two weeks about 60% of the companies in the S&P 500 will report and investors are carefully dissecting every number, nuance and phrase. As of July 21st about 12% of the companies have reported and 70% have beaten Wall Street’s already low expectations. The Washington Post 7/21/2015

Questions call Paul@ pstanley@westminsterfinancial.com Share this blog with someone who cares about their money.

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That Was The Week That Was-3rd Week July

 

 

Glitch or Hack? Wall Street, United Airlines and The Wall Street Journal All Had Computer Issues on Wednesday July 8th.

Connectivity issues or routers gone haywire. There were a slew of excuses Wednesday last, including software upgrade goof, which was the reason why trading on the New York Stock Exchange was down for most of the afternoon and United Airlines cancelled flights due to a router malfunction.The online edition of the WSJ was also down. The excuse there was too much traffic trying to get information on the NYSE and United situation. Watching it unfold on television there were Talking Heads appearing too jolly, too warm and fuzzy, too reassuring, with old poops being dragged in front of the camera who said ‘they could remember back in the day when similar things happened.’ ‘It won’t be the last time,’ said another old time floor trader. A few did put the blame on the Chinese and pointed to the Cyber Threat Map at Norse Corporation that purports to show cyber attacks from villains across the ocean in almost a Star Wars video screen.

Norse Intelligence Network Attack Map. You can see this in real time by searching online ‘Norse Attack Map’ and watching an almost Star Wars Data Attack.

Others, who were taking a more sinister reaction, asking why such a coincidence with all three down at about the same time. Americans love a conspiracy and now the question is do we have here another? CNBC, WSJ and Other Sources.

RETIREMENT THEN AND NOW…

Population of people 65+ in U.S. 1980: 8%

2013: 12%

Projected average annual inflation rate 30 years

1980: 3.5%

2013: 2.5%

Personal Savings 1980: 9.7%

2013: 4.8% (We’re probably saving more dollars because of the income inequality.)

Average Price of a non-profit hospital room 1980: $127 a day

2013: $2,157 per day

Percent of private companies that offered pensions 1980: 67%

2013: 17%

Percent people claiming social security @ 62 1980: 60%

2013: 42%

Statistics from Wealth Management.com John Kador 6/30/2015

 

 

Bye-bye Bonds!

Barrons Cover July 11, 2015. Gary Hovland Illustrator.

Okay to own individual bonds and hold to maturity but the days of bond funds and bond ETFs are gone. Barrons.com 7/11/2015

 

Revisiting the Greek Drama…The leading cast of characters…

Greek Leader Frosted Germany’s Merkel Right to the End. Greek PM Tsipras ended up as a powerless pariah in Europe by supposedly dealing in bad faith and angering German Chancellor Angela Merkel. Negotiation ploy of Greece leaving the EU by the Greeks was surprisingly supported by Merkel saying that Greece would have to leave for five years and only then would need to reapply for admission. This game of chicken was started by Tsipras who, the EU leaders felt, delayed any constructive negotiations, increased dramatically the cost of the Greek bailout and fostered a clash between the German led Europe and the IMF. In the end it was Greece that blinked as they realized that Merkel had her fill and would allow them to leave the EU. Sources variety including WSJ 7/13/2015, CNBC 7/13/2015, etc.

Made me smile…

New Yorker May 18, 2015

Played a round of golf with some friends who occasionally read my blog and one complained I didn’t provide enough specific information but mostly ‘easy reading’ news.  (Specific Investment Advice cannot be provided in my blog due to compliance restrictions.)

Markets Up on Greece Deal Monday.  Dow up 200+. It was giddy-up right from the gate and then traded steady for the entire session. The 10-Year Treasury closed yielding 2.45%. WSJ 7/13/2015

Chinese Rebound Fizzles….wait for it…More Pain Due?Supportive government measures uplifted Chinese stocks temporarily but Tuesday 7/14, shares fell as the government stepped back from further intervention. WSJ/7/14

 

THE TREASURY DEPARTMENT AND I.R.S AMENDED TREASURY REGS FIRST WEEK THIS JULY TO STOP COMPANIES FROM OFFERING LUMP-SUM BUYOUTS TO RETIREES WHO ALREADY RECEIVE A MONTHLY PENSION. This has no impact on those plans that already have that language but those plans going forward. Lump sum buy-outs are the worst choice for those retirees receiving a monthly pension. Several local multi-national companies offered this to their retirees and it was a disaster with people who didn’t know anything about investing to suddenly be faced with an investment decision. Not only do retirees suddenly have to come up to speed on knowing everything there is about income strategies but they have to pay new fees on investments that they already paid fees on and new expenses when moving the money to new managers. Source Thinkadvisor.com 7/13/2015

 

New Yorker cartoon of the day 7/14/2015

 

 

Markets Up Tuesday As Earning Season Begins. Markets Down Slightly Wednesday as Greek Parliament Drags Their Heels on Bailout Vote.

Greek Parliament Passes Austerity Bailout Wednesday Evening.

Markets up nicely Thursday.

 

Here’s the Rate Hike Plan… Janet Yellen. Turbulence overseas is not a strong enough reason to deter the Fed from raising rates sometime this year. Some say it could be as early as September while others feel it will be in December. Then there are those that think that 2016 will be the starting date. The Fed Chief said she is more inclined to move on rates sooner and increase them slowly rather than wait a long time and move aggressively. ‘Moving soon and slowly will give the central bank flexibility as it proceeds,’ she said. WSJ 7/15/2015

Carl Icahn (Activist Investor and the guy on the left next to  BlackRock CEO Laurence Fink) at the Hedge Fund Conference Delivering Alpha said that some Bond ETFs (Exchange Traded Funds), have bought so many riskier and infrequently traded bonds that it isn’t clear who will buy them, or at what price, should funds be forced to sell during a market panic. If you remember Bill Gross, of Janus Capital, sent a note to investors last month, bemoaning the lack of liquidity and how “mutual funds, ETFs, and even index funds” might be hit in a downturn.(We are talking bonds and fixed income here). Deborah Fuhr, founder of London based exchange traded product consultancy ETGGI,LLP, said, ‘The reality is that the ETFs are really only as liquid as their underlying asset.’ Even though a bond ETF traded more than 20,000 times on average each day, according to the firm, their top 10 bonds only traded 13 times a day on average. The fact is that market liquidity may seem to be ample during normal times but vanished during market stress. WSJ 7/16/2015 Clients looking for more information can call or email me.

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.

That Was The Week That Was-2nd Week July

 

A funny thing happened on the way to work in China…

There was a time you couldn’t stand in line at the grocery store, or fill up your car tank with gasoline, without getting a stock tip from a complete stranger. It was the era of the internet and the day-trader. In the 1990s many people in the United States, who were not stock market investors, suddenly became enthralled with the new thing called a computer and the Internet. Overnight they became  ‘players’. Their philosophy was simple: You couldn’t lose money betting on the new ‘dot.com’ stocks. Their rational was as long as dot.com was in the name of the stock you were fairly sure to win big time. Even ‘independent stock analysts’ appeared on cable television saying what just about everyone thought they knew: It was the decade of the internet and the new-new thing. Everyone from school teachers to garage mechanics had to invest in the stock market to get rich.

There were people that quite their jobs. Day-trading emerged as an  obsession-occupation where folks huddled over computers and televisions to earn a living. And what a marvelous living it was until someone discovered that the ‘Emperor Wore No Clothes’, and it all came crashing down. It was March, 2000 when $5 trillion in market cap was wiped out. It took over 15 years for the Nasdaq to recover from that decade of excess. Four years before that fall, in 1996, Alan Greenspan called it ‘Irrational Exuberance.’

We’re seeing a similar scene playing out in China as Chinese stocks had been enjoying a seven year high, up 162%  in 2015 from its low in 2014. This is more disconcerting than Greece. The last few weeks the Chinese markets have dramatically reversed their ascent to come crashing down. The Chinese Shanghai index is off more than 25% from its highs reached in June.

The new, small investor has opened millions of brokerage accounts in 2015 so they could play this stock rally, reported WSJ July 6th. Sophie Wang, a 32 year old college teacher said she opened her first trading account ‘on advice of my hairdresser.’ So far she is down 32%.

China is concerned about the recent selloff. IPO activity has been temporarily shelved as a means to curb activity. The Central Bank has pledged they would ease lending requirements, Still the small investor has sold more than he has bought which has accelerated the market’s decline. Analysts have concluded that the main cause of the selloff was that earlier gains were too fast and too much. The China’s small cap index was up 233% from its low in 2014.  WSJ June 6, 2015

 I warned readers a week earlier about the China market correction. See my previous blog.

The Greek Drama Continues and the U.S. Markets Retreat But Don’t Fall.

As soon as the Greek vote no was announced Sunday I checked the U.S. futures market and the DJIA futures were off about 300 points. When markets opened the futures were off triple digits but midway in the trading day they actually were even and slightly in positive. In the end the Dow closed down Monday less than 50 points.

Brett Stephens in Opinion WSJ June 6th, wrote,’ Greece and the Flight from Reality. A people who want wealth without work will have neither. Here are more points of interest:

• Greece has 133 public pension funds, each administered by its own bureaucracy. (This number was supposed to come down to 13).
• 18% of their GDP is on public pensions since Greeks retire early and live longer than their Eurozone peers. (5% GDP in the U.S.)
• Their military spending is the highest in Europe.
• Labor costs are 25% higher than in Germany.
• A liter of milk costs 30% more than anywhere else in Europe due to regulations.
• Pharmaceuticals are also more expensive.

For the millions of American Investors there doesn’t seem to be a panic. Follow Buffett's advice and ignore the noise, concentrate on your long-term goal.

The volatility index is up mildly from June 29th.

Tuesday futures showed a modest higher open but were off 200 points on the Dow at the open. Markets closed up, which indicated the kind of volatility we are now seeing.

 

You’ll be hearing the ‘R’ word as long as the dollar is strong, China continues to fall, copper and metals drift lower,Fed officials refuse to close their big mouths and Greece is unresolved. Jimmy Cramer talked about what we can expect to be hearing a lot of warnings about Recession. He also commented about staying away from buying oil stocks until they’ve fallen more. He wouldn’t be a seller but would add when and if oil stocks fell more. –Cramer, The Street, CNBC 7/7/2015

  The Big Concern Should Be China. Chinese Markets fell again Wednesday, the yuan hit a four month low against the U.S. Dollar. The Shanghai Composite has lost 32.1% since mid-June. WSJ 7/8/2015

‘The signs of overtrading (Chinese Investors) are hard to exaggerate….trading volume on many recent days has exceeded that of the rest of the world’s markets combined. Turnover is 10 times the level seen at the peak of the previous China bubble in 2007, and virtually the entire market inventory is changing hands every month.’- WSJ 7/8/2015 China’s Stock Plunge Is Scarier Than Greece.

‘A CLASSIC MANIA BUBBLE’-Ruchir Sharma, author, Breakout Nations, and Emerging Market head at Morgan Stanley Investment Management. Sharma appeared on CNBC and also wrote an op-ed piece for the WSJ July 8th. He was reporting on China and was much stronger in his opinion about the Chinese collapse on CNBC than in his opinion piece in the Journal. He said there are four basic signs of a bubble and the Chinese market has the extreme end on all of them. The margin debt acquired by Chinese investors is the highest in the history of mankind. The Chinese markets were already weak with extreme valuations before investor started piling into the markets. There was and is no basis for that kind of investment rally. He concludes that there is no global drama that bears closer watching than Beijing’s battle for control of their stock markets. 7/7/2015, 7/8/2015 WSJ, CNBC.

Markets down in the early going Wednesday with Utilities, Non-Cyclical Consumer Goods and Healthcare holding up fairly well versus Energy, Basic Materials, Telecommunications and Financials which were leading losing sectors. 7/8/2015 Source: Google Financial

Glitch Closes NYSE Trading Wednesday For Most of Day. Not a Terror or Hack Attack Say Experts. Opens Before The Close. NASDAQ Handled Orders While NYSE Down. 7/8/2015 DOW OFF 261 points.

Global Tumult May Give Fed Pause as to When to Raise Rates. WSJ 7/9/2015

 New Yorker 4/20/2015

Corporate Earning Season and Johanna Bennett at Barrons Predicts Corporate Earnings Will Easily Hurdle a Low Bar. With Greece worsening debt crisis and China’s stock market rout domestic stocks are not cheap with a market that trades at 16.8 times forward earnings. Barrons.com 7/9/2015

Markets Opened Higher Thursday. Closed off their highs but still in positive territory.

 

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- 1st Week July

 

 Bad News First- Monday  Domestic Markets Fell on News Greece May Exit the EU.

Good News Most of Greek Debt is Owned by the IMF, the European Central Bank and Eurozone governments, not the private sector banks.

The real concern is China where stocks fell but recovered on Tuesday. An interest rate cut last weekend by the Chinese may stimulate their markets. On Tuesday morning the Shanghai Composite Index closed up 5.5% after falling 5%. Late Monday more confidence was shown as the Finance Ministry said that the state’s pension fund (who knew Communists had pensions?) could be allowed to invest up to 30% of its net asset value in securities.Info from sources WSJ, Barrons.com, MarketWatch.com and CNBC.com 6/29 & 6/30/2015

 

Unless You’ve Been Living in a Cave  the new Big Thing in the world of finance is the Robo-Advisor. That’s what they’re calling when you fill out a form, send in a check, or allow access to All your money and have a computer manage your retirement or personal savings. Yes, some server in some server farm is managing your money. You don’t see an account representative, talk to someone about what you really want or have a number to call if you feel like asking a simple question. There is a machine, hidden far away, that manages your money. For a small fee, or semi-small fee, a machine (maybe the size of a toaster oven) allocates and diversifies, dices and chops, a customer’s investments. It’s being hailed as the best thing for those individuals that don’t want or need to have anything to do with (ugh) brokers or financial planners. It’s promoted as being cheaper, more efficient and it’s been done before. Yes, most managed money is and has been robo-managed for decades. Large and small investment firms have investment models set by certain algorithms and have been selling the service to customers for as long as I can remember. Most of the major insurance company annuity income plans are robo-managed. A customer chooses conservative, moderate or aggressive portfolio path and the system manages it. It sets the allocation, buys the appropriate funds and rebalances when it thinks it is necessary. The difference with those robo-advisor programs and the new Big Thing Robo-Advisors is that there is and has been a broker or planner, at the beck and call of the client, that explains the service, what the plan is attempting to accomplish and provides handholding if a plan disappoints or needs to be augmented. Most current advertised Robo-Advisory services don’t provide that unless you have several million dollars. So when the New Best Thing fails or doesn’t perform the customer has to take things into their own hands which includes scrambling to find a 1-800 number. Pulling the cord out of the wall from the computer doesn’t work in case of a financial crisis.

 

Consumer Confidence Soars! The U of M study showed the consumer confidence index jumped to a 5 month high, 16.5% above where it was a year ago. Fortune 6/25/2015

 

Scary Numbers or Trying to Scare. Here’s a situation where you and I know this is absolutely wrong. Headlines read 1/3 of all workers have no savings for retirement. Then the article go on reporting what a headache these folks will be for us hard working, savings souls. The problem is that the 1/3 of all workers not saving is probably correct. That includes young workers to the workforce, immigrant workers and those with low income jobs. The Harris survey where these number came from were conducted by asking 2,000 adults age 18+ last May. wealth management news 6/27/2015.

   Headline Sunday ‘Enough Already!’

Eurozone countries have had their fill of the Greek problem. Sunday, June 28th, Greece reached out to EU for compassion and were met with newspaper headlines that reflected most all Europeans had enough of the Greek Theatre. I would expect by the time you read this the problem has been solved and Greece has either capitulated to EU requests or has been tossed from the EU. info from various sources including WSJ 6/28/2015

The Greece Problem Has No Easy Solution. From everything I’ve read the Eurozone is not in any way in a compromising attitude toward Greece. The Greek Government completely misread the resolve of their Eurozone neighbors. Bloomberg reported that ‘Europe’s uncompromising stance reflects more than simply disapproval of the way the new Greek government handled negotiations. The continent is in a better place to deal with the potential collateral damage of a messy Greek situation, be it financial or technical.’ Neighboring countries have taken time to increase their own financial defenses. The Greek government has completely misread their ability to negotiate without significant compromise. It may have already gotten real ugly. Bloomberg, WSJ, CNBC and other sources.

 Monday Morning Greek Banks Closed. 6/29/2015

  Many ATMs ran out of money. Limits on how much one could withdraw per day.

 

  Alexis Tsipras, Greek PM, Socialist, Far-Far Left leader of the Syriza Party, ran on a platform of renegotiated bailouts and ceasing to pay debts which amount to 175% of Greek GDP. Estimates are in excess of $350 billion. On Monday the EU didn’t blink when Tsipras walked, banks in Greece were closed, and talking heads on U.S. cable financial programs, simply shrugged their shoulders and said that the world had been waiting for just such an event. The only ones that would truly suffer were the average citizens of Greece if in fact Greece breaks from the EU. While there could be political repercussions for EU members there are little financial consequences outside of Greece. The Washington Post reported January 26th that Tsipras has been emboldened by support from left-leaning economists. Failing to cut a deal with the EU could seal Greece’s financial fate for a generation, perhaps longer. Playing hardball with the likes of Merkel has shown that Tuspiras has been more a showman than negotiator and that left-wing political rhetoric is best left to college campuses and coffee houses. 

Monday Markets Down Triple Digits. A Greek Default & Exit From the EU Would Make an Endless Depression. MarketWatch 6/29

Things are a changing…

 

 

Is it my imagination, or creeping senility, that the stuff broadcast on TMZ and evening news as news you’d get arrested for doing in the 1960s? Remembering Lenny Bruce?  

 

 

Getting Back to Greece. The Greek negotiating team came back to the EU Tuesday to ask for another bailout. The reason they explained they needed the money to make the payment that is due at midnight. At 9:35PM the EU responded with, ‘It is regrettable.’ No new deal on the table but Merkel said that last minute talks were available. Here are a few charts to help put this in perspective.

Wednesday Morning European stock markets signaled higher as Greece defaulted. Interestingly gold hasn’t budged to the Greek situation and many thought it would. The reason, according to CNBC, is that many think the Greek crisis will be contained. Meantime Hedge Funds, who should have known better, and had bought debts of Puerto Rico and its troubled electric utility, were looking for ways to salvage something as the country is struggling with $70 billion in debt and a sluggish economy. CNBC.com 7/1/2015

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.