Musings….I occasionally get questioned why I usually allocate some cash in a customer’s investment account. I disagree with the notion that a client needs to be fully invested. Here’s a few thoughts:
- You never know when you’ll need to get your hands on money- quick. If everything is invested time is needed to sell and have the security clear- usually three-five days- before money is sent. Another three day to get to your mailbox unless you want to spend the $s to wire.
- Opportunities provide themselves throughout the year. Let’s say you bought Apple at $600 it’s now $450 and there may be an opportunity to dollar cost average your share price down. Or, something similar.
- Your next door neighbor’s kid needs to get bailed out of a Fort Lauderdale slammer.
- Someone in the the house gets sick and you need cash for income and you don’t want to sell stocks triggering a taxable event.
- Some folks only keep a few hundred extra dollars for an emergency- far too little dollars, as far as I am concerned.
- Lots of other reasons. So keep some of your investment in cash. You’ll thank me later.
S&P Down for The Week- Nasdaq Up- Mitch Zacks reported Monday, February 11th in his ZIM Weekly Update: 4th Quarter GDP numbers were weak because of defense spending, the economy is still growing at a 2 –2 1/2% annual growth, consumer spending is still strong as was residential housing. Private business put inventory investment in the back end of 2012 on hold to wait and see what types of costs cuts and tax increases were coming from Washington. The markets saw the above as one-time events. However we may not, writes MZ, see a full GDP rebound until we put the rest of the ‘cliff’ behind us.
Interesting Piece at Morningstar on Why You Shouldn’t Ever Fund a College Education With Whole Life Insurance or Variable Universal Life. I still think the best way to pay fully or partially for a kid’s education is to buy a state funded plan when the child is young. In Michigan it’s called the Michigan Education Trust but check your state for their specific plan, enrollment and particulars. The Trust is like a zero coupon bond and buying it at discount to maturity. Insurance has to be the worst way to save for any specific buying reason. Most of the time a person barely breaks even with their deposits. The insurance salesperson recommends, sometimes, borrowing on the equity of a home to fund the insurance policy. Why do that when you can simply invest it in a discounted state plan? Big Commissions! Their sales talk includes benefits of tax deferred cash values, interest paid on money borrowed (unless loan interest exceed earned interest), and the need for a self-completion in case of death (but few speak of disability or illness). Parents and grandparents interested in funding college could buy term life (cheap) and buy the state education trust with the balance.
Thinking of creeping into 2013 with your sidelined cash ‘cause most of the gains are in for the year? Maybe a little here and a little there. No one knows what the markets will do for the entire
2013 but a good idea is to put in 1/2 now and wait for some pullbacks to buy the other 1/4 and then the last quarter when the markets lets you. The problem with this is convincing yourself to buy now and later. As markets correct or reallocate its a nervous time for investors. There is never a compelling reason to buy- there is always one to hold cash and hide in the bunker. The risk premium is on cash and bonds this year. Opportunities are in equities and dividends.
Still…
Naysayers are on the sidelines hooting for retirees 
to ‘get out of the market!’ This from veteran doomster Robert Powell at MarketWatch. He writes that there is a ‘camp’ ( unidentified as to what type or kind of ‘camp’- possibly space?) that suggests no matter what the stock market is doing or has done a retiree has no business in the market unless –the caveat- you have all your expenses covered with safe, reliable streams of income. And what exactly are these folks recommending to retirees? A mere Four Bucket Income Approach that covers the basic expenses. They call this the ‘modern portfolio theory’. Here are the Buckets:
- Social Security
- Part-Time Work
- Immunized Bond Portfolio (whatever the heck that is)
- A lifetime annuity stream (locking in at the lowest yields since Croesus started to crawl)
- Possibly a reverse mortgage!
The above suggests that the retiree has insufficient assets accumulated and rather than follow the ‘modern portfolio four bucket into the poor house approach’ simple continue to work full time. In his blog Powell suggests that the four bucket approach is for someone who is 65 years of age.
REALITY CHECK! The life expectancy for a 65 year old is for another 19 years. Following the above recipe, locking in income at the lowest yielding assets for two decades, could be the worst thing a senior could do. Inflation at a simple 2% per year would reduce purchasing power of income from the Four Bucket mess by about half over the 20 years! That’s some fancy planning! And, in my opinion, the entire article was a waste of ink. (or is it space?)
Monday was Brutal, Ugly and Markets were Systematically Bludgeoned. The Dow was off 130 points at the close, through it was down more and even made a futile attempt at losing less than a hundred points during the afternoon. Gold was up slightly and so was Oil. Interest rates have been methodically moving up. The last few weeks I have been moving clients from the long-end bonds as they show extreme weakness. The 10-Year Treasury is at 1.95%. This is a substantial move up in interest. Toyota Raised Its full year guidance after posting a 23% gain in net profit. This is the first black ink for the automaker in five years. The reason for upping guidance is the weakening yen. Central Banks Race Currency to The Bottom. Making currency cheap is a global game and not one that only the Americans and Chinese can play.
A Year Earlier The Rating Services downgraded the U.S. Now it’s Payback! Its the U.S.’s turn to charge the rating firms for their mis-predicting ratings on mortgage bonds that lead to the mortgage meltdown. Payback is a –you-know-what! S&P is currently in the Justice Department’s bulls eye. The government is asking $1 billion dollars. What’s shaking execs at S&P is that they were expected to ‘predict’ the 2008 meltdown and to have the firm admit to wrongdoing which would leave it vulnerable to investor lawsuits. Who’s got the big stick now? 
Apple is Dead Money….for now…sez Bill Gunderson at MarketWatch.
No short term big movement on the stock according to Gunderson but see the above valuations which makes this the best long-term play. Back in November he called it the best cheapest quality stock in the world.
Best Tech Picks by The Top 4 Advisors?
- Microsoft Recommended by Four
- Apple Recommended by Two
- Google by None
- Yahoo by None
Looking for Your Account Tax Statements? Expect Them By 15th of February -for sure by the February 28th.
Call if you have questions.
Reversal Tuesday- or Was It Opposite Day? 
The Dow was up over 120 points early in the session but finally closed up 99 points with the Naz up 41 and the S&P up 15. Gold and Oil modulated around the same numbers, slightly down, from the day before.
Watch Zynga? The Gaming site closely aligned (hrmph) with Facebook saw its stock plummet when it was befriended…or is that de-friended by FB. The company surprisingly showed a profit not an expected loss in the fourth quarter and shares jumped. Now news that the company may partner with UK gambling sites. Two sites may be launched by early June- ZyngaPlusPoker and ZyngaPlusCasino. The company has always had the capability of handling a domestic on-line poker site. Shares up 11% on Friday!
Biggest News was Dell Going Private. The deal has been in the works but still this was a big deal. Microsoft is a contributor to making the deal work. To protect its interests in selling its products the software maker made a $2 billion contribution. Microsoft has done similar ‘saving graces’ for the likes of Nokia and Yahoo runs Bing. Michael Dell gets his company back in a $24 billion buyout but more importantly investors should remember that Mikey has bought a bunch of his shares and seen value diminish significantly. This could be the one and only way the computer mogul could re-jigger his wealth. As far as buyouts this wasn’t the biggest. RJR Nabisco in 1988 was huge at $25 billion ( ‘member that?) but there have been others since-
Experts on Thursday said this Dell event is not something we’ll see a lot of.
Wednesday Markets Sideways. American’s AMR 
and U.S. Airways Group are in ‘hush’ negotiations that would create the world’s largest airline. Goldman Sachs listed their 10 stocks with upside potential:
- Apple
- Goodyear Tire and Rubber
- Prudential
- Applied Materials
- Joy Global
- Ford
- Discover
- Williams Company
- Southwestern Energy
- National Oilwell Varco, Inc.
Bill Gross and Jim Rogers Team-up? Actually the two have been warning investors that the Bond party is over. Rogers said on Bloomberg Radio that he was shorting long-term government bonds. Rogers is known for his affinity for precious metals and has never seen a commodity he hasn’t liked. Clients wondering how they can short the 20-year bond may call or email me.
Thursday Markets were all over the place. Off over 100 points in early action the Dow closed down 43 points. A mere piffle….Gold is trading sideways and so is Oil. More whispers of a correction but still upside as momentum continues to carry markets higher. Investors may want to cast an eye at gold to trade when markets make their move down. 
A be Careful Driving Shout To All My East Coast Clients and Friends…
Friday Up!
Yawn…seemed so 1990’sish… The kind of market on Friday that you didn’t have to know anything, study anything, just rake in the moola. Exelon cut its dividend to a reasonable 4% from around a heft 6% and the markets didn’t bat an eye since the price has been baked into the utility. Google’s CEO has decided to do some family planning or re-allocation which is code for selling a lot of company shares, paying the tax now and not caring who knows it. The sale of $2.5 billion of Google stock should rock shares more than a bit this week. Gold and Oil ended the week down.
Bloomberg Reports 
that six bottles of 1911 Moet Champagne are on the auction block and may fetch $63,400. This is considered primo vintage, according to Michael Broadbent, founder of Christie’s wine department. The best years for Champagne was between 1874 and 1921. There is also an old musty labeled bottle of brandy from around the time Napoleon was girding his loins for a battle against Moscow that will be on sale for those interested. Investors may want to research the Liv-ex Fine Wine 50 Index (LXFW50) as an alternative to buying and storing their own Muscatel. I’ll be off this weekend checking the bargain bins at Costco for a few bottles of Manischewitz.
Questions call Paul @ 586 783 7080 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
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