Market Update

With oil crashing and the worst week for the DOW in two years behind us, I thought I’d weigh in on our market outlook. Especially after reading an article last week titled “This is What a Market Crash Looks Like.” Geeesh, let’s not over react!

Below is a graph of the SPY, the S&P 500 Index ETF since January 2013. Each little bar represents a day – green meaning the market was up for the day and red the market was down. Overall the market has moved up in a rather orderly fashion between the two white lines for two years now. The exception being, a little dip this past October below the bottom white line.

chart1

In traders’ parlance the bottom white line is termed “support”. Meaning it represents a price level where buyers tend to come into the market and bid prices back up. Looking at the chart above, we are clearly headed down to support – but we aren’t there yet. So we are still in the “normal” range for stocks to move in. In other words, we are not yet at panic mode.

Below is another perspective. In this chart each block (we actually call a “candle”) represents a week’s change in the market’s price. So a green box means the market was up from Monday through Friday, and a red candle, that the market was down.

 chart2

I like this view as it takes some of the daily “noise” out of the picture. Going from right to left you have two red boxes – the first just represents the current week – so at the time of this writing Monday the 15th from open until 11:54 AM. The next red box is last week. But preceding this was seven consecutive positive weeks. That is unusual. A down week or two at this point is not just expected but would be a bit reassuring that we are not entirely in “bubble” mode.

Bottom Line

The markets’ may be a bit unsettling for the next week or two, but hold on until January. In fact go tend to your shopping or put a few extra lights up outside, but ignore the market noise and enjoy a happy and blessed Holiday and New Year. I’ll be here watching the market for you!

Homefull

10653488_10152855542038485_9055314364873303704_n

I realize that during the Holiday season it seems like everyone wants to relieve you of your money from Black Friday sales to multiple charities. So forgive me for jumping on the band wagon! But I am on the board of a wonderful charity, Homefull, right here in Dayton. Homefull not only provides housing for otherwise homeless people, but works to secure meaningful work opportunities to permanently end homelessness. Besides, who couldnt use a little tax deduction for their tax return next year!

homefull.org/donate

#givingtuesday #SpreadtheGood #homefullgt

 

Do you have Genworth Long Term Care Insurance?

Just a quick warning to anyone that may have purchased a Genworth Long Term Care product. Genworths stock dropped over 30% on Thursday after they reported earnings. Apparently the restated their financials after recalculating the reserves required for their outstanding Long Term Care Insurance contracts. Simply put, they admitted that they grossly underestimated how long clients would live and thus how long they would utilize their long term care insurance.

What does this mean to an insured? Likely premium increases. LTC products guarantee premiums wont go up on an individual basis, but they can increase premiums across all policies of the same class. Based on what Ive read, expect rates to go up very significantly. 

For more information give us a call and we can review your coverage.

Another Raise

One of our more popular holdings, McDonalds (MCD) has come under a bit of pressure lately  both in the media and on Wall Street. After reaching a high near $102 a share in May of this year the stock price has dropped to below $90 a share in October. The media has pounded their menu saying that the younger millennials are avoiding MCD for healthier alternatives. And yet Ive doggedly held their stock in many  client accounts.

While the jury is still out, we are starting to see the reasons for holding and our continued purchase of MCD. First, MCD is held in our Dividend and Growth strategy accounts. Their dividend has been above 3% even at its peak price. More importantly the dividend has been increased for 38 consecutive years and in this area MCD did not disappoint  they announced a 5% dividend increase payable to shareholders at the end of November. This brings their current yield to 3.59% as of market price on 11/6/2014 and annualizing the dividend.

Part II of my thesis is that McDonalds is still a cherry job for anyone in advertising. Their contract has to be one of the largest in the advertising world. Money buys the best and the brightest. MCD will find a way to come back into the good graces of the fast food consuming public. Surveys are already showing some in roads from campaigns such as this social media campaign that coincides with the relaunch of the McRib sandwich.

MCD is a great example of an investing concept I will come back to in future posts: the difference between buying a company and buying a stock. Stock buyers look for price appreciation in the near term. The media is created for stock traders. Investors like the Warren Buffets of the world buy companies.  Companies generate cash flow that is unaffected by stock price that allows them toraise dividends by 5% even when their stock price slides by 12%.

While Im not happy with the stock, I am happy owning the company, mainly because they pay my clients a 3.59% dividend while we wait for their stock to turn around. And next year we will likely get another raise.

Market update

Money pasteThe stock market has had a five week “correction” followed by a one week recovery – that recouped 70% of the corrections losses. While sentiment has seemingly shifted from an extreme doom and gloom outlook over the past few weeks, statistically the stock market retests its lows about 67% of the time. Meaning we will likely give up this week’s gains.

aWhile I remain cautious, we did buy a couple of holdings for our portfolios this week. Notably P&G for our dividend strategies. P&G is THE dividend aristocrat based on its history of paying a dividend every year since the mid 1890’s (that’s not a typo!). P&G just hasn’t been cheap enough to meet my criteria. Yesterday I gave in and took a position across our dividend portfolios. P&G released earnings this morning and we were rewarded with a 3% gain in early morning trading.

Our growth portfolios are also seeing changes. We will focus more on individual stocks as we rotate into the “Buy in October” seasonal strategy.

I’ve also added an article on the bond market that was published yesterday at horsesmouth.com. The main takeaways are 1. While the stock market can’t decide if the economy is too strong (meaning the Fed will start raising interest rates) or too cool (economy drops to recessionary levels) the bond market seems pretty convinced that the economy will continue in the “just about right” pace. And 2.  Even if the Fed raises short term rates, longer term rates aren’t likely to keep pace. While the economy is growing it is too soft to support a sharp rise in long term interest rates. While Fed action could spark a recession it is likey  4- 5 years out. My caveat to that is Europe. Major European bank failures will roil our market and economy. PDF:  Horsesmouth _ Bonds

The take away is this. Many advisors are recommending clients move into short term bonds as a defensive move against rising rates. However, the bond market is telling us that intermediate bonds – in the 8 – 10 year maturity range may actually be affected less if the Fed starts to raise short term rates.

Spooked Markets: Is This the Correction?

Horsesmouth | William DeShurkoHere is an article that posted on www.horsesmouth.com today.

One advantage technical analysis has over fundamental analysis is that it should take the emotion out of investment decisions. Graphs and charts don’t lie, they are what they are. And what they are now is pretty darn ugly. For a full review read the entire article can be downloaded: Spooked Markets.

The short summary is that we have been selling our more aggressive holdings for a month now. We will be moving all 401(k)’s 50% into a cash position, raising another 20% cash in our Growth” strategy and will likely look to hedge our Dividend strategies with a “short” ETF.

 

Market Commentary

In the real world study of schizophrenia known as the stock market some of you (ok probably about all of you with a life) may have missed this news over the weekend:

“This past weekend, China printed their September Import and Export data, and brother did it surprise everyone with how strong these two components were. September Exports rose 15.3% VS a year ago, and Imports rose 7% for the same time frame. The consensus was for 12% and -2 respectively, so not only did Exports and Imports kick some tail and take names later, they beat the forecasts! I think that this data is good proof in the pudding that China will show a recovery in the economy in the 3rd QTR, and really improve in the 4th QTR.” The Daily Pfennig

Why is this important enough to warrant a blog post? Because the “market” can’t decide whether to panic over the economy being too good – and the Fed raising interest rates soon, or whether to panic because the global economy is so bad that a slowdown will cross onto our shores and deflate our record high corporate earnings that have kept this market rally alive.

While Europe is still the big question, the prospect of a further slowdown of the Chinese economy has also spooked commodities and the industrial sectors. Maybe with some optimism that Chinese growth has bottomed we can put a floor on the market and end the current selloff.

As I have mentioned many times, it’s best to make your investment plans before events happen, taking the emotions away from decision making. I noted earlier that we began building our “arc” months ago. We have raised substantial amounts of cash in our Dividend and Growth managed portfolios – in the 35% range. And have about 20% cash in our Growth portfolios. Even if the markets turnaround from here, many stocks have seen fairly large selloffs and I have a shopping list of discounted equities that I am ready to buy.

On a side note, OPEC led by the Saudi’s, has continued to produce oil at their previous pace despite a global slowdown in demand. Normally you can count on the Saudi’s to cut production to prop up prices. This time however they have chosen to keep the pedal to the metal so to speak and maintain production. Why the change in strategy? Because they feel that by lowering the cost of a barrel of oil they will slow down the growth of U S and Canadian production which they see as a threat to their economy. What goes around…comes around…

Even more ironically, with gas prices dropping by about $.50 a gallon over the last year, the average driver is saving about $100 a month at the pump. By giving the U S consumer a little extra spending money, the Saudi’s have done what our own politicians are incapable of – creating a policy to help out us poor working stiffs in the middle class!

Market Outlook

cantin1For sometime now we have remained fully invested, but very nervous. Starting in mid-September, I have been cutting back on our risk exposure. Our Seasonal Growth model has been in more conservative (lower beta) equities since May. In addition we are now about 25% in cash as well. For our Dividend portfolios I started moving out of some of our more cyclical stocks in September as well. While we may look fully invested, the Toews High Yield Fund is currently 100% in cash. Additionally I continually look at our holdings and am only looking to buy stocks that are particulary cheap.

For those that enjoyed this week’s red moon/lunar eclipse, you might (or might not) enjoy this bit of stock market history from thedailypfennig.com:

“As it happens, we find ourselves smack in the middle of an astronomical/market phenomenon known as a “Puetz window.” In the early 1990s, researcher Steve Puetz looked into eight epic market crashes — starting with Holland’s tulip mania of the 17th century, ending with Japan’s meltdown in 1990 and  including the U.S. crashes of 1929 and 1987.

Turns out every one of them took place within a few days of a full moon/lunar eclipse. And each time, that  lunar eclipse took place within six weeks of a solar eclipse. (We’ll spare you the suspense: A solar eclipse is
coming up on Oct. 23.)

Puetz ran the numbers and concluded the odds of these circumstances being sheer coincidence were 127,000-to-1.

We leave it to others to debate the validity of the “Puetz window” as a useful forecasting tool. We’ll note here the current one continues through the end of the week. We’ll note further that while epic crashes tend to occur during Puetz windows, not every Puetz window results in a crash.

The next Puetz window, you wonder? Early next April. About six months from now.”

 

(photo from nasa.gov)

While the markets have shown some recent volatility, the one thing we can count on is our dividends and dividend increases. One of our popular holdings, Microsoft (MSFT) announced a dividend increase yesterday. Their quarterly payment has been upped from $.28 to $.31 giving investors an 11% raise in their income. When is the last time you received an 11% raise?

For more information on how to have a life long stream of rising income schedule a free portfolio analysis today!

bill@401advisor.com

Investors.com quote

Here is a link to an article, Biotechnology ETFs Show Rebust Health In August I was quoted in posted at investors.com – the online publication of The Investor’s Business Daily (IBD). Short article focusing on two of the hottest market sectors, biotech and solar/green energy. My take is that it is mainly a consequence of a “risk on” market attitude that comes from global central banks jointly adding money into their respective economies. “Don’t fight the Fed” is particularly appropriate when multiple Fed’s are all pursuing the same easy money policy. Especially now that the ECB has decided to join the party.


bill@401advisor.com • 937.434.1790

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Charles H. Dow Award Winner 2008. The papers honored with this award have represented the richness and depth of technical analysis.

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