Corrections Are Nasty. If you’re one of those that pays attention to what’s happening with your money, and you’re a long-term non-trading type investor, you know there was a 10% market drop, for the first time in four years last month, then a huge reversal, and following that continuing seismic testing of that markets low. These aftershocks, I reported a few weeks back quoting some very experienced professionals, will continue due to the initial severity of the initial market fall. It’s a technical thing and I don’t fully understand it and I expect people who’ve been doing this for a longer time than me don’t either. If you’re like most people you’re probably thinking the correction will never end and maybe wonder what you could have done to keep your money safe from the turbulence. For one you could have been invested in cash but that doesn’t make sense because cash didn’t make money this year, or last. In some countries savers pay banks to hold their cash. You may have thought fixed income. Bonds are facing higher interest rates and if you owned anything in the fixed income sector you’d be down about a point or two so far this year, and can expect more losses as the rate hike and years go by. There are, however, a few fixed indices where the return has been slightly positive for the year. How well these same fixed investments perform going forward is a fair certain to the downside.The High Yield Index has been crushed year to date. Amateur investors have been mesmerized by the high yield on the High Yield that they’ve ignored their losses on principal. The REIT Index, with all its cash flow, is also down year-to-date. The S&P 500 Index is down for the year, but amazingly only negative 5.22%. Even the Retirement Target Date Plans have fallen. You would’ve thought investment houses would have done a better job in this sector. This includes all Target Date Retirement Composite Plans dated 2010-2060. Utilities are down, as are energy, financials, industrials, materials, telecommunications and information technology sectors.
Mutual fund managers, where most of us have our money invested, are either actively managing, holding still due to index restrictions, or rebalancing for the next market leg up.
Gold is down year-to-date as is silver. The metals are supposedly hedges but have not performed well recently. That’s because there is no inflation, and sometimes investors forget that. The dollar is strong, no inflation (again I mention, or very little) in sight. Foreign, emerging markets and global real estate have also been pummeled.
This whole ‘asset-allocation’ concept, using bonds, cash, stocks (both domestic and foreign), failed but you don’t hear much news about that. In fact the ‘asset allocation’ purists are fairly mum about what’s been happening. Conservative income or balanced funds have been hit since they hold cash, stocks, bonds and preferreds. Their recipe is that everything that’s down they hold. The new-new market hurts investors who need to hold bonds. The new-new rules are cash for stability but not income. You don’t get to hear that from brokers because there is no money to be made in cash. And I don’t get that from dealer fund representatives for the same reason.
You could have ‘allocated’ using some of the Long-Short Mutual Funds. The problem, which I investigated, is that you need a whole lot of ‘Long-Short’ to make a difference. You cannot simply hold a small amount and expect the fund to do wonders for your entire portfolio. The bottom line is that the Long-Short to make a difference should be your (entire) portfolio.
Which brings me to ‘what should I have done or where should I go when the noise subsides?’. Getting paid is pretty darn important for a long-term or retired investor whether its an up, down or sideways market. For that I like dividends. I like companies that grow their dividends, and have a history of doing so. If it’s a great company with a nice dividend and the company stock gets hammered along with everyone else there are two things I do: I don’t worry (which doesn’t mean I like it) and I may buy more, if I have cash sitting idling by on the sidelines.
You should always have a shopping list in times like this because this is when the ‘smart’ investor buys what they like at prices that are ‘attractive’. If you don’t have the spare cash than using those dividends to reinvest and buy more shares on the discounted share price works as well. The result is that these are ‘buying’ opportunities and not calamities. The very worst thing you can do is sell and hide to cash. The reason is simple and that’s because no one is smart enough to know when to get back in. Selling is easy-buying is hard. SOURCES VANGUARD, MORNINGSTAR, FIDELITY FUNDS.BLOOMBERG 9/7/2015
It isn’t difficult for me to understand why someone would buy as many cans of tuna fish as they could afford when they are on sale because they know (without anyone telling them), the price will eventually go back up. What makes me wonder is why that same person doesn’t buy quality, dividend paying stocks when they go on sale?
There’s a lot of truth in jest…source IBD
Relief Rally Tuesday! The Dow closed up 390 points, also up was the S&P 500 and Naz. Gold was down. Not everyone was thrilled with the huge upside market day. According to Barry Ritholtz, who was quoted in Barrons.com, about his blog on Bloomberg, ‘Investors are better served by smaller multi-rallies than big one-day relief rallies.’ He went on to point out that big one day gains occur when the market has already run into trouble, and often are technical in nature (here is that technical stuff again with no explanation). Michael Batnick, of the Irrelevant Investors, pointed out that 22 of the 25 best single days in stocks occurred under the 200-day moving average. The more gradual gains reflect a healthier accumulation and not a reflexive reaction. Still for the buy and hold investor 390 points to the upside is 390 points to the upside. Barrons.com The Trouble with Relief Rallies. 9/9/2015
Warren Buffett, ‘Economy not bad but not booming.’ The Oracle was on CNBC Squawk Alley Tuesday and said that we’re on the same track that we’ve been on for six years. He doesn’t think interest rates should be ‘way’ higher than European rates. He explained one couldn’t have high rates here and low rates there. There are consequences to that. He also said the U.S. was growing at a rate of 2%.Source CNBC 9/8/2015. In other words it’s a slow growth economy, and I got a feeling corporations and small businesses are simply waiting out this current Administration, which is just my unconfirmed gut feeling.
The End of the World in 3-Weeks? I got a phone call from a former client last Thursday who asked me what I thought what’s going on in the marketplace and I gave him my best estimate and he told me I had it all wrong and that according to a certain ‘Rabbi’ he follows the world’s economies are going to go belly-up within a few weeks. In other words it was a doomsday scenario on the horizon. He asked if I’ve heard that and I said, no. Well, he said, he has and he’s telling everyone (meaning my caller is) to pull their money from all investment accounts and hold them in money markets because this ‘un-named’ Rabbi has a great history of being spot on with his global calamitous predictions. I asked if this be true shouldn’t he be buying gold, silver or some other commodities? My former client couldn’t answer that. He hemmed and hawed, and said that money markets were definitely the place to be. I let it go at that and we parted company partly because I had little to add and primarily because he provided few details of the impending global catastrophe. Which reminded me that years earlier I had liquidated all the investments of another client at her request because she had it on good advice that the world was ending and she was stocking up on cases and cases of olive oil, as it would be the next new currency of the world. That didn’t happen and neither did Y2K. But, you never can tell when some one eventually gets it right. I really should get a new phone number. 
Two Old Timers With 100 Years Stock Market Experience Say, ‘The Time is Now to Buy Stocks.’ Sam Eisenstadt, former director of research at Value Line and Norman Fosback, former president of the Institute for Econometric Research, and the Fosback’s Fund Forecaster, were quoted in MarketWatch.com. Fosback said that there would always be a ‘convenient’ excuse for a price correction. If it wasn’t China it would be something else, he said. Both gents are recommending that investors re-evaluate equities and re-position their portfolios to more advantageous levels. Fosback is dismissive of the Chinese devaluation and he calculates the U.S. imports more than 4 times more from China as we export, so the recent currency devaluation helps the U.S. more than it hurts. Source MarketWatch.com 9/9/2015
More Volatility Thursday as Markets Climbed Triple Digits But Closed Off Their Highs.
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.
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