That Was The Week That Was- 5th Week March

Yeah, that was last week…  Up one day, down the next.

 Thursday S&P 500 Index broke its previous high set in 2007 and closed @1569. Momentum, explained the Street. The markets are being supported by the Fed, make no excuses other than that. Modest growth is what its being called in the financials and we know if The Bernanke pulls the plug on buying the long-end (oh, sure and the short end, too!), the whole  Magilla goes south in a heartbeat. A lot of institutional money has been taken off the table lately but some still is there because firms are afraid if they scoot they’ll miss some or all of the upside. They do that and then they got some ‘splaining to do.’ Michael Harnett @ Bank of America, Merrill Lynch said to the WSJ, ‘The strongest reason for the stock market renaissance has been easy money from the Central banks.’ There it is. Only a year back folks were concerned whether the markets could close at or close to 1400. Now we look back and some recalculate going forward 1635 for the S&P 500. ETF investors moved substantial money to short the Treasuries the last two weeks. Concerns are evident that we have moved too high too fast in 2013 when everyone (or pert near everyone) expected a Tsunami in January as our politicians couldn’t get their act together at the close of 2012.  Markets always disappoint the greatest number of people.

 

Dow Theory Reminder…

Since Mid-March the Transports have been lagging the DJIA. Dow Theory, as you well know, states that one cannot sustain without the other. You cannot manufacture and sell goods and services without delivering same goods and services. DJT has been around since 1884 and is senior to DJIA, but most retail investors ignore it. According to Richard Russell if the DJT falls to 6100 it is signaling a top.

 

The Cyprus Issue was supposed to be solved the week before last.  Or so we thought when we last reported to you. The Devil, however, is in the details. Seems the details changed from one week to the next and if the Cypriots didn’t grab on the EU lifeline Monday last they would have been ousted from the EU ( such a bad idea?). What we didn’t know until we were well into the trading day last Monday was the deal involved the two major island-nation banks. One was set up with all uninsured depositor money going to, what is now labeled, a bad bank, where the assets would be ‘run off’. The depositors at the Bank of Cyprus would have their accounts frozen and then converted partially to equity in the bank, where losses on the savings could be as high as 40%. Effective the two major banks of the country would be drastically diminished. I would imagine a run on whatever assets are left would have started as soon as the bank allowed withdrawals but a cap was placed on how much money could be withdrawn. The EU is having bank depositors pay for the country’s bailout. Our domestic markets awoke from mid-day slumber and didn’t like the news much Monday as we were heading for a new high on the S&P 500 Index. Then everything fell apart except Oil which rose a bit. Gold fell to $1603. The Dow was off its lows but closed  down 64 points. Tuesday traders emerged and proceeded to bid stocks up as if fears of a domino effect in the EU banking sector was all a mirage. Markets moved smartly up Tuesday with the Dow +112 and the S&P closing at 1564. Wednesday fears of contagion and a much weaker euro started the day and the Dow and S&P closed off its lows.

So What’s the Big Deal? Banks use loans from people like you and me that we call deposits. Banks pay us little or no interest for the money which in turn we have the right to pull out  anytime we feel like it. But few of us feel like pulling our money all at once and moving it somewhere else or burying it in the backyard. A run on a bank starts with one and cascades because many people want their money out at the same time. Banks have very little cash on hand since they use our money to invest. With the new EU philosophy of having bank depositors pay for the sins of the banks and  ills of the country investors now worry over which EU country’s banks and depositors will be next? Will this be the EU plan to solve their 2008 Recession? If you really wanted to freeze a nation from doing anything make the banking system a pariah and turn the country into a cash only society.  And if EU is the single largest trading partner of ours guess how fast our markets may tumble?

 BBC News commented that Capital Controls, while good in some measure, could actually be damaging as the memory of investors is long and nation’s banks may not be able to recapture the Trust they once enjoyed.

 Financial Planning?

For us ‘ahem’, seniors, who’ve finally come to the conclusion that what we got is what we’re all ever going to get. Having someone write a financial plan for us is like wheat germ sprinkled on a banana split. It’s not going to do much good. For those young un’s who are contemplating a financial plan I can only say, ‘Think, again!’ Because it’s my opinion a financial plan serves no good purpose except cause you, and possibly your spouse, to fall into a deep depression. The numbers needed to secure a lifestyle at retirement equal to that enjoyed as  healthy, bright-eyed and working optimists involves accumulating monies well into the seven digits. Most of us only can wish. There is a retirement plan calculator on my web site and its free and pretty accurate, as far as financial engines are concerned, if that’s what your looking for. You can take it out for a spin, print the results and burn them for all the good they’ll do. The problem with doing future this or that or what I call what-ifs is that things change from the moment we finish scribbling out a plan. Needs change, jobs change and even in half the cases, according to statistics, spouses change. And when spouses change you can bet that a significant amount of your combined wish list just went into the toilet. So what can people do if they just want a guide for the future? How about common sense? Here’s a few ideas for those who are just getting to that mature, sensible age and realizing life isn’t one big party:

• Save as much as you can without taking food or necessities off the table.
• Don’t have a broker or financial guru? Don’t know where and what to invest in? Buy the S&P 500 Index, and then ignore talking financial heads. well-meaning friends and neighbors.
• Married with children? Buy as much long-term level term life insurance as you think prudent.
• For your estate plan-Write a will or just put beneficiaries on everything you own. You won’t need a Trust until your kids and grandkids prove they’re as irresponsible as you think they are.
• Buy MET for the kids college education ( or even the grandkids), and run really fast from someone who tells you to buy their 529 Plan for education funding. Just ask those folks who were set to send kids to college in 2008. 
• Over the years you may get sick, be in an accident, lose your job, get divorced, sued, file for bankruptcy or any one of a dozen bad things can happen to you that happen to other folks every day. You’ll survive only you won’t have as much money as you had before the bad stuff happened. Just understand it.

Last Week in Robert Powell’s blog he quoted Matt Greenwald, president of Matthew Greenwald and Associates, which conducted the research for the 23rd Annual Retirement Confidence Survey. Matthew thinks he has the answer to solving the US retirement confidence:

• Calculate how much we need at retirement.
• Provide Employer Financial Education.
• Get Employer’s to use auto enrollment aggressively.

The numbers that are traditionally illustrated for comfortable retirement are stratospheric and impossible to reach. (2) Employers could care less, for the most part teaching employees anything but how to do their job effectively. (3) Aggressive auto-enrollment could do more financial harm than good. Back to the drawing board…

Regular Folk Buying Homes to Rent.

According to the WSJ we’re on the cusp of a rental boom and a lot of major players along with Moms and Pops are getting into the action. While this is good, for now, for the housing market, critics say that if values erode some of the ‘players’ may abandon what they own.

Bulls 12 Bears 11.

Baseball is the only team  sport played with no clock.  While the stock market does have a clock the game keeps being played during good times and bad. The score over the last 50 years is Bulls 12 versus Bears 11 and some say the the current Bull run of 4 1/2 years is a little long in the tooth since the average Bull market runs 3 1/2 years. It may be time for the Bears to even the score.  Curmudgeon Paul Farrell at Dow Jones gives us a dozen reasons why this market is set to correct. His list includes Bandwagon bias, Rationalization, House Money, Pride, etc.  Tuesday markets up while consumer confidence was down. What Farrell doesn’t give us is fundamental reasons why we’re toast. The average Bear market lasts about 10 months and we’re due for a correction anyway. But, the way Farrell reports the Bear market is an Armageddon of the first order and not a simple orderly retreat. He wants us all into the bunkers as he writes about a coming Crash and not a Bear market or a correction.

A Note From My Bond Desk at Westminster Financial Securities, Inc. alerted me to the news that copper is expected to rise to $4.00 from its current $3.417, which is where it closed at on March 26th. I researched what would be the best and easiest trade? Obviously owning either a mining stock or an ETF would make sense. The Copper ETF that BlackRock is attempting to create is not on the market and is fighting regulatory hurdles involving storing the actual metal. The problem is that unlike gold or silver copper weighs a lot. There is, according to some, 200 pounds of copper in each home.  This is causing builders and processors of the metal to argue that storing copper will create an artificial shortage and escalate prices. Currently investors can buy Exchange Traded Notes that deal with futures or buy stock in mining companies like Freeport McMoran to invest in copper.

 

 

What the 10-Year Yield is Telling Investors.

Bond Traders may think they are the smartest money managers and, I for one, will not disagree. If you want to know where the markets are going don’t ask an equity trader but go to the bond desk. Andrew Thrasher writing for Today on-line said for us to watch for were the 10-year settles. Remember it was over 2% and going higher earlier this year and now it fell back to yield 1.94%. As the yield falls the conclusion is that weakness is in the equity markets.

Where Are Hedge Funds Moving Fixed Investments? The demand for fixed income yields continue and some Junk Bonds are seeing their premiums exceed 100%. Yields fall as price increases. According to the above sources Hedge Funds that specialize in fixed income are buying equities.  This isn’t really new news anymore, is it?

Markets Want to Rest. Momentum may be the only thing keeping things afloat and news in MarketWatch was that the law of physics is what’s pushing the markets higher. Cisco lifted divided 21%, the stock still off its 52 week high by a buck. Apple getting the needle by the Chinese government. The state is seriously going after the global brand by attacking its warranty and customer service programs, as an excuse to beef up sales of home-growth brands ZTE, Lenovo (they’re the folk who bought IBM computer biz) and smart phone maker Huawei. Early signs appear that citizens are not being swayed. Still…(make nice..) Craig Stephen sez, ‘Apple has gotten under the skin of Chinese authorities.’ Seems Apple is a pretty tough negotiator and haven’t inked a deal with China Mobile but has a deal with much smaller China Unicorn. If China Mobile doesn’t do a deal quick with Apple they’ll lose customers to Unicorn. It galls the Chinese to have a foreign company make money on their own turf, namely their proprietary 3G networks. Soon CM will do the deal with Apple but won’t be happy about it.

Play Ball! 

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