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Update on one of our Dividend and Growth Plus Strategy Holdings

Published October 22, 2013 dividends , Investing , money management Closed
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DuPont beats by $0.04, misses on revenues. DuPont’s (DD) Q3 EPS came in at $0.45 and beat consensus by $0.04, while revenue climbed 5% to $7.73B but missed expectations by $50M. “Third-quarter sales volumes and operating earnings were stronger across most businesses compared to a soft quarter last year,” said DuPont Chairperson and CEO Ellen Kullman. “Fourth-quarter operating earnings will be up substantially from last year. For the full year, we are on track to deliver modest earnings growth.”

Comment: Earnings news is good for maintaining DuPont’s current 3.03% yield. With a modest 13.8 P/E ratio there should be positive momentum behind the stock price moving into the fourth quarter based on guidance for earnings to be up substantially in the fourth quarter.

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Don’t Rule Out Bonds for Income

Published August 9, 2013 dividends , Investing , money management , portfolio , retirement investing 1 Comment
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I recently posted an column at: MarketWatch.com titled: “Why Individual Bonds Remain Very Attractive” While investors are bailing from bond mutual funds – a wise move,  individual bonds do offer protections against rising interest rates not found in bond mutual funds.

 My overall prediction is that rates cannot go up dramatically. With every 1% increase in interest rates, the added amount the government must pay to just pay the added interest cost on the Federal debt, increases by about $180 billion. For perspective, the “sequestration”, the mandated cuts put into place that get the blame for everything bad in the economy, only cut spending by $42 billion (and prevented another $43 billion of spending increases). Simply put, the government and the Federal Reserve have a lot at stake to keep interest rates relatively low for a very long time. That said, a ½% increase across the board seems likely – but only if the economy continues in a positive direction. I think this is a big “if”.

The short version of the MarketWatch article is that many investors think that a bond’s value is fixed, and that they are stuck holding a bond to maturity. The reality is that a bond’s value will naturally increase in value through the first half of its life. This allows a bond investor to sell their bonds at a profit after a short holding period. If rates don’t increase. But even if rates rise, a bond will likely return to its par value several years before its actual maturity date.

 For example I was recently quoted an Ohio municipal 10 year bond, Aa2 rated and insured, a ten year maturity, and a 3.655% yield to maturity. That is a federal and state tax free interest rate. If interest rates do go up ½%, the face value of the bond will drop below purchase price for the first 3 ½ years or so. But by year 5 the bond should be back to what an investor would pay for it today. So in effect, your 10 year bond has come a 5 year bond – paying 3.655% tax free. That is a pretty good deal.

If you own bonds and want to know when an optimum time would be to sell them, contact my office and we will run the analysis for you. If you need more income, or just want to diversify but don’t know where to go, give us a call and we can explain what bonds can do for you, even at a time when everyone is cashing in on their bond funds.

Why We Use Dividend Paying Stocks for Income

Published July 2, 2013 dividends , Investing 1 Comment
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At 401 Advisor, LLC one of our three investment strategies for our client assets is a model that primarily uses dividend paying stocks to produce cash flow. Dividends can be paid out to clients for income, or reinvested to provide portfolio growth through the purchase of additional shares.

The one disadvantage of choosing a strategy that narrows the investment options (only stocks that pay dividends in this case), is that different subsets of the overall market will both outperform and underperform the entire market for different periods. From the beginning of May through the end of June was one of those periods of underperformance for dividend paying stocks. Not only did we see underperformance, but we also saw uncharacteristic volatility. I wrote about this on my post on June 21, “Market Comment“.

This is when having a strategy that fits your investment goal is important. Matching strategy to objective allows us to focus on what is most important to our clients. In this case, income and preferably rising income.

 I looked at 17 of our portfolios’ top holdings. While this would not necessarily represent any individual’s portfolio, every one of our Dividend and Growth Opportunity strategy investors will hold several of these stocks. For the averages I just used a simple average and looked at stocks only, none of the ETF holdings.

I first looked at each holding’s price performance from May 1, 2013 open through the close on June 21st. I then looked at the first dividend paid in 2013 and the most recent and annualized the two to look at the difference.

Taking a simple average the “portfolio” has a year to date price gain of 4.17%, but a loss of 4.67% from May 1 through June 21. For an investor on January 2nd, the portfolio yield would have annualized to 4.57% for the year based on first quarter dividend payments. But based on the most recent dividend payments, the annualized yield would be 4.69%, a raise of 2.56% (annualized to 5.12%). Plus dividend stalwarts McDonalds and Verizon  typically raise dividends in the third quarter. With official inflation running at about 1.5% our income investors have received a nice raise in return for the volatility we’ve seen this year. In fact our largest loser in the portfolio, UHT has actually increased its dividend from $0.62 per share to $0.625 per share. Relatively small, but showing that a yield increase is not dependant on price appreciation.

For a retiree especially, income and income growth are their typical primary investment objectives. Well chosen stocks, based on free cash flow analysis, will continue to pay, and as we’ve seen actually increase dividend payouts, even in declining markets.

Despite recent weakness and some continuing uncertainty over rising interest rates, a focus on dividends is a long term profitable strategy. Below is a graph from Ned Davis research that shows that dividend paying stocks, and specifically stocks that increase their dividends outperform the overall market.

dividend

 

What to Make of the Current Market High

Published January 26, 2013 covestor , dividends , finance , Investing , money management , portfolio 2 Comments
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Much is being said about the S&P 500 breaking through its former daily high set in 2007. The question seems to be whether this is the end of a bull market or the start of a new one?

First, let’s put this into perspective. Below is a chart of SPY – the SPDR’s S&P 500 Index tracking ETF showing monthly returns since 1997. Many pundits like to point out that we have been in a four year bull market, and therefore, this rally is extended and due to come to an end. This is simply false.

What we have been in for four years is a bear market recovery, as anyone who invested prior to 2008 can tell you, we have simply had a long 4 year slog to recovery from the financial crisis induced crash.

Figure 1 SPY 1997 – Present, monthly returns.

chart1

Source: www.freestockcharts.com

Second, from a longer term secular reference, we have really been in a 13 year bear market and recovery cycle dating back to the 2000-2002 tech wreck market crash. Since the market peak in March of 2000, we have not gone above, and stayed above that level for 13 years now. This is the definition of a secular bear market.

The good news is that secular bear markets do end.

Below is a chart from Crestmont Research showing the history of secular markets in the U. S. since 1900. As you can see the market’s history consists of long periods of rising markets (green bars) followed by relatively flat periods (red bars). However, “flat” describes the period from beginning to end of the period. Flat periods, or secular bear markets, can be filled with large declines and recoveries.

Chart 2. History of Secular Markets

chart2

Source: http://www.crestmontresearch.com/docs/Stock-Secular-Explained.pdf

So are we going higher? Hard to say.

 I know you want an answer.

My point is not that we are at the beginning or end of a bull market. My point is simply that just because we have re-attained prior market highs, does not in and of itself mean much of anything as to which way this market goes from here. It is simply not that simple. But it makes for good headlines.

What I will say is this: The overall stock market is not “cheap” at these levels – in terms of corporate earnings. However, it is extremely hard to factor in just how much of an effect the Federal Reserve’s series of Quantitative Easings have had on valuations. In English – low interest rates make stocks more attractive. We have extremely low interest rates, albeit artificially low due to the Fed.

If the Fed can successfully keep interest rates low this year, and without a major “event” the market could finally breech its former highs, and stay above them before the next bear market rears its ugly head.

That said, in practice we remain cautiously optimistic. We continue to look primarily for undervalued dividend opportunities in our Dividend Growth portfolios. We are fully invested in our seasonal ETF growth strategies.

Top Dividend Picks for Retirees – 2013

Published December 28, 2012 dividends , finance , Investing , money management , portfolio Closed
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I am of the firm belief that the only way for a retiree to invest with an anticipation of receiving a life-time income from their investments is to buy dividend paying stocks. Ideally, big blue chip stocks with not only a history of paying dividends, but of increasing their payouts as well. We know the names; IBM, P&G, Coke a Cola (KO), Exxon… Unfortunately, many retirees having seen incomes frozen for a decade and portfolios ravaged by two bear markets, find that the 2%-3% dividend yields offered by these companies is just too little to pay today’s bills and enjoy even a modest retirement. To accommodate retirees with higher income needs I try and mix in a combination of the tried and true blue chips with a few “high yielders” to bring up the overall portfolio yield. I define “High Yielders” in today’s market place as stocks with a minimum of a 5% yield (more than double the S&P 500) and still hope to stretch that into the 7%+ range without adding too much risk.
So with that in mind here are two of my top picks, one in each category for 2013.

McDonald’s (MCD)
When looking for sustainable and increasing future dividends stodgy and boring, and needed is a very good thing. While food in general is a need, some might question the “need” behind a Big Mac. But ask any working single mom, and “Kid’s Meals” is on the need list. While third quarter 2012 saw an uncharacteristic slow down in earnings, for retirees we are looking at cash flow. Even with a drop in share price over 17% at its lowest, MCD announced an increase in their quarterly dividend in November from $.70/share to $.77/share. This marked the 36th consecutive year of increasing their payout.
Fundamentally MCD is an all weather stock. In poor economic times harried workers “downsize” their eating out bills by going from the mid-tier Applebee’s and Olive Gardens to McDonalds. Also expect more competition for Starbucks as MCD develops their “Café” identity. MCD has a strong international presence for growth in developing markets, and offers a currency hedge to the dollar.
Their payout ratio is modest at 52%, P/E at the market level at 15.35 for 2013, and modest growth expectations in the high single digits for 2013. MCD is a solid 3.47% yielder providing income stability and a likely raise well into the future.

SeaDrill Limited
While SeaDrill Limited (SDRL) provides a wild ride (Beta 1.97) it can be worth it for the investor needing a little extra juice in their dividend payouts as SDRL has a current yield of 9.21%.
SDRL is in a solid and growing business. They provide deep water and submersible rig platforms for oil and gas drilling and exploration. Their largest division “Floaters” are fully leased for 2013.
Of course no company sports a (%+ yield without their being question marks. For SDRL there are two major market concerns. The first is debt. Simply put SDRL is considered a “highly leveraged” company.
This is fine as long as cash flow can support the debt. Recently SDRL’s stock took a tumble when they agreed to sell their tender rigs division. While accounting for a small portion of cash flow, any disruption is seen as a concern. However, SDRL also announced that they plan on using the proceeds to invest in more floaters – a higher revenue source per rig, and as mentioned above, their current inventory is fully leased. Bottom line, by the end of 2013 revenues should be up, not down without an increase in debt.
Market concern two is that SDRL paid two dividends in December 2012. Their normal December dividend and a prepayment of the March 2013 dividend. For new investors, if SDRL maintains their 2012 payouts, this would mean a yield of about 6.14% vs. the reported yield of 9.21%. However with a projected P/E of 11.61 for 2013, and earnings growth potential, I see SDRL as a way to boost income in a very solid industry and a very solid capital gain potential as new rig development and leasing accrues revenue to their earnings.

Rally or Top?

Published September 28, 2012 dividends , money management , retirement investing Closed
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The markets have had a very nice rally since mid July when Mario Draghi, ECB Head, gave a speech indicating that the ECB will do “whatever it takes” to keep the Euro together.

This week has brought a modest pause to the advance. The question now becomes, “Is this a pause, or the beginning of the end to the rally?” Unfortunately, in today’s politically charged environment judgment can be clouded. And global events certainly add an additional interesting backdrop for today’s investors.

The chart below is from http://www.chartoftheday.com. The chart plots all major market rallies of the last 111 years. Each blue dot represents the rally’s total return and the length of the rally. The “You Are Here” dot is in the bottom left corner.

The question I am asked frequently is whether the market is “too high” since we are approaching all time highs. From the chart below, it is evident that, by historic market rally standards, this rally has just begun.

Unfortunately, investing is never that clear cut.

If you look just above the “You Are Here” dot, you’ll see the label for “2002”. The post “tech wreck” rally was slightly less in return and slightly longer in duration than where we are now. And as we all now know, the 2002 – 2007 rally ended most unhappily.

Conclusion: If this is another “Bear Market Rally” i.e. Similar to the 2002 – 2007 rally, we are likely looking at an over extended market.

But if this is truly the beginning of a new market cycle, then we are just at the beginning.

Over the weekend I’ll work on a new post outlining our current strategy as we head into the years final quarter.

Bottom Line: There is plenty of time for patience to pay off. Being conservative is not such a bad idea. More aggressive investors might want to start looking at building there “market rally” portfolio, if they haven’t done so already. With cash on the sideline, I think it would be prudent to see how earnings season plays out before committing. If in the market, I’d plan an exit strategy now

Investment Outlook – September 2012

Published September 5, 2012 dividends , Investing , money management , retirement investing Closed
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Our portfolios have lagged the overall market since mid-June when the recent market rally started. The portfolios have continued to hold our “low beta” selection of dividend paying stocks and ETF’s.

The rationale to remain in “coast” mode is that it is my opinion the rally has been primarily fueled by Mario Draghi’s comment that the ECB stood ready to take “any action necessary” to preserve the Euro and by extension the EU, including Greece. The problem is that the ECB does not have the authority to follow through on such statements. Simply put, the ECB is prohibited from “printing” the money they would need to implement a U.S. style round of quantitative easing (QE). It is pretty well accepted, that absent such action, there is just not enough economic backing to backstop the financial bleeding in Europe.

The bull argument continues with the “bad news is good news” theme. With China’s economy softening, U. S. economic data “softening” at best, the economic stage is being set for a global simultaneous easing from China, the U.S. and Europe.

The best bull argument is that things are getting worse, so there has to be Fed intervention which would fuel a global rally. I am not willing to buy into that scenario. However, if we actually see such action come to fruition, we will change the look of our portfolio, jump on the bandwagon, and look for higher beta (more aggressive holdings) to capture gains if the rally truly emerges. With the risk to the markets extremely high if such hopes don’t materialize, I will wait for the Central Banks to literally “show me the money” before making a commitment with client’s hard earned investment dollars.

Below is a screen shot from covestor.com comparing my Dividend and Income Plus Portfolio (Dark Blue line labeled “Manager”)to the S&P 500 for the prior 90 days. While the underperformance is clear, so should be our lack of volatility. In fact the portfolio sports a beta of .63, or a volatility measure of 37% less than the S&P 500. And even with our 20% cash position, the portfolio is sporting a very healthy 4.5% dividend yield.

 

Combining the low volatility with the dividend yield, we are extremely happy with our overall performance, especially for the risk adverse income investor, such as a current or near retiree. Furthermore looking at the graph below, again from covestor.com, I zoom in our recent performance.

Since the recent market peak on August 17, the portfolio has outperformed the market by .7% over just two weeks.

Our ETF Seasonal Growth Model has had similar relative results.

Mario Draghi has “leaked” his plan for ECB bond buying and the reaction has been a big yawn. I expect September to be a volatile month and expect to close the recent gap in relative performance with the S&P 500. Primarily by maintaining value while the S&P 500 corrects.  I hope to be true to our motto, “It is not what you make, but what you keep that matters”.

Looking a little further out I do expect the post election rally. I have picked more aggressive investments to rotate into our portfolios if the rally does materialize. Until then patience is prudent.

Individual performances will vary depending on timing of investments, withdraws, specific holdings and allocations. Past performance does not indicate future results. All investing involves risk. Please consult with your financial advisor on suitability of any investments specifically mentioned prior to investing.

It’s All About the Bazooka

Published August 21, 2012 dividends , Investing , money management , retirement investing Closed
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The markets have been rallying since June 26th when Mario Draghi, the ECB President, announced that the ECB would do “ whatever it takes” (or as Wall Street terms it “will bring out the bazooka”), to save the Euro. Add in the fact that August has been the number one month for the NASDAQ and Russell 2000 indices in election years, and this month’s rally has come as no surprise.

But remember in investing, it is not what you make but what you keep that matters. The following is from Megan Greene, of Roubini Global Economics, and reprinted in John Mauldin’s “Outside the Box” Newsletter.

As usual, this has been a lazy August, but we do not expect the quiet to last. Indeed, for the second September in a row, developments in the eurozone (EZ) have the potential to be highly dramatic.

Greece: The troika is due to return to Athens in September and make a ruling on whether to release additional tranches of funding to Greece. If the troika decides to cut the taps off—and we don’t think it will—then Greece would default and exit the EZ. The Greek government aims to renegotiate the second bailout program when the troika returns to town in September. If the troika plays hardball and does not grant the Greek government any concessions, then the governing coalition would likely collapse. Also in September, the Greek parliament will have to pass a number of measures to generate €11.5 billion in savings for 2013-14. With a high degree of austerity fatigue in Greece, we can expect social unrest.

Portugal: With Portugal starting to slip on its fiscal targets, we expect Portugal to begin negotiations on a second bailout package. Currently, Portugal is meant to return to the markets in 2013 but, with bond yields well above sustainable levels, we regard this as highly unlikely.

Spain: The auditors Deloitte, KPMG, PwC and Ernst & Young are due to present their full reports on the capital needs of Spain’s financial sector in September. The findings of this report will be used to determine the exact amount the Spanish banking sector will need to borrow from the EZ’s bailout fund, the European Financial Stability Facility (EFSF).

Italy: The Italian general election campaign will begin in earnest in September. Although polls point toward a center-left-led coalition, Italian politics is at its most fluid state since the early 1990s and, with so many voters still undecided, it is impossible to call the election.

Germany: The German constitutional court is due to vote on the legality of the ESM (the successor to the EFSF) and the fiscal compact on September 12. We expect the court will deem the ESM legal but, if this does not occur, it would serve a major blow to EZ policy makers, who have committed the ESM to potentially purchasing sovereign debt in the primary markets.

France: The French government is scheduled to unveil its 2013 budget in September. Markets will be disappointed if it does not include large spending cuts, but the announcement of further austerity risks riling trade unions and stoking civil unrest.

Netherlands: A general election is scheduled for September 12. Recent opinion polls suggest the ruling right-of-center VVD will be unable to form a right-of-center majority
government. Consequently, coalition negotiations are likely to be protracted. The left-wing, euro-skeptic SP may win enough votes to be the second-biggest party. This would make it more difficult for the new Dutch coalition to secure parliamentary support for additional support measures for peripheral EZ countries.

Eurozone: There is a progress report on establishing the ECB as a single banking supervisor due out in September. Given that many details have not been hammered out yet, there is a chance that the progress made on this first step toward a banking union will disappoint.

In terms of the broader EZ developments, we expect the Greek government to collapse by the end of the year, and a Greek exit in early 2013, followed by an exit by Portugal by end-2014. Moreover, we expect Spain to receive official support from the EFSF/ESM in late 2012 after the ESM has been fully ratified (the second half of September at the earliest), while Italy will hang on longer but will eventually need support as well.

Add in that seasonally September is one of the worst months for U.S. markets and September could bring back a level of volatility that we have not seen for awhile. While I have been in the camp that just can’t comprehend how Europe holds the Euro together – the amount of money involved is truly staggering, even by U. S. debt and bailout standards, I do think German Chancellor Merkle acquiesces and gets out of the ECB’s way. In other words after a month of haggling, name calling, bluffs, and counter bluffs, the ECB turns on the printing presses before year end. Greece may or may not be invited to the party. But not sure it matters in the medium term.

I have done a 180 and think that even Greece will stay in the Euro. Consider down the road five years if Greece leaves, devalues their currency and now “competes” with the rest of Europe. Shipping costs, one of Greece’s actually industries, plummet due to the devalued Drachma, which revives the glory days of Greek shipping. Tourism is flourishing as it costs have as much to vacation in Greece as anywhere else in the Euro controlled Europe. Wouldn’t Spain, Portugal, Italy, and Ireland all be looking on and reconsider their own Euro status? Just sayin’.

Back to matters at hand. For lots of reasons, including those already mentioned, I think this rally is getting a little long in the tooth. I wouldn’t be jumping in now. Let’s get into September, see if we can find a better entry point, but be ready to invest aggressively in October.

October, November and December are traditionally strong months, especially in election years. If Draghi gets the green light to bring out the bazooka, i.e. print endless amounts of money, the big worry over the market will be lifted. Fiscal cliff will be put off, and China will be priming their pump over the winter. Forget politics, focus on the markets and we could have a strong fourth quarter, but expect things to get worse in order to make them better.

Pre Mid-Year Wrap Up

Published July 3, 2012 dividends , Investing Closed
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As we head into the July Fourth Holiday I’m struck by what an appropriate holiday to be celebrating based on our financial markets. No, not so much the Patriotic implications, but the fireworks!! Every day when I come to work and power up the computer I’m expecting to see new “fireworks” exploding on my screen as some new catastrophe of the day has lopped a couple hundred points off the DOW.

Instead, surprisingly to me, the markets have really fared fairly well this year with SPY, the S&P 500 tracking ETF up just over 5% for the year.

Unfortunately 5% can be wiped away in just a couple days if fireworks are really ignited. Not surprisingly, I’ve received several phone calls from investors asking what our outlook and strategy are as we head into the second half of the year.

Since today is the 3rd, and a shortened trading day, and I plan on going out of town for the rest of the week, this will not be THE 2nd half of 2012 Outlook piece. But I thought I’d send out a brief note before what will be a very long weekend for some of us.

Bottom line the economic news that hit over the weekend was pretty bad. Virtually every single country showed flat or slowing growth in manufacturing as indicated by the PMI numbers that came out over the weekend. And yet the market has held up. The one Wall St. axiom I quote often is, “Don’t fight the Fed.” Meaning when the Federal Reserve is easing, or trying to stimulate the economy, the stock market will generally react favorably. Today, it is not just the U S Fed that looks to be moving closer to a new round stimulus. With the generally weak global PMI numbers China is loosening their lending requirements, Brazil looks to be reversing their currency policy and strengthening the Real before the World Cup and Olympic events that they will be hosting, and of course the big one, Germany has blinked first, and looks like they will accept a more accommodative policy for the rest of the Euro Zone.

Our strategy has changed a bit. I have sold SH, an ETF that acts in the reverse of the S&P 500, from our income portfolios. This 20% position did very well dampening our volatility for May and June, but I think July may be a decent month as Central Banks look to speed up the printing presses. Until next week, I’ll leave this in cash or a neutral position and see what happens when Wall St. returns from the Holiday. This does leave our targeted income a little short, so I will be making a move soon. Our ETF Seasonal Growth strategies are unchanged. Our low Beta (volatility) strategy has done very well since our “go away in May” sell signal tripped early in mid April this year.

For those of you that trade on your own, UNG the ETF that tracks natural gas has been moving up, and is right at resistance at $19.50. If it holds above this level it could be a buy. For really aggressive investors, Brazil might be a play heading into the winter Olympics. Neither holding would be appropriate for our strategies.

Of course past performance is no guarantee of future results. And any ideas suggested in this post require significant additional research before implementing into any portfolio.

Why I’m Worried

Published April 27, 2012 dividends , Investing , money management Closed
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Over the last week I have done a major revamp of our managed portfolios. In our ETF Seasonal Growth Strategy I’ve rotated into low beta and low volatility ETF’s. In our Dividend Income strategies I’ve replaced several higher beta holdings with lower beta, lower P/E, and unfortunately lower yielding stocks and ETF’s. Our models also signaled a sell of JNK, the SPDR High Yield Bond Index ETF, which increased our cash position by 20%. Here’s what I’m looking at:

  1. Seasonality. Any fundamental investor, and probably most technical investors seem to minimize the history of “Sell in May, and buy in November” as a legit trading strategy despite historical evidence showing significant risk reduction by following the strategy. While results are not consistent, what the data does show is that most of histories large drops have come between May and November. I don’t like big drops, so I’m cautious, and nervous.
  2. The Chicago Federal Reserve’s National Activity Index (CFNAI) has had a large downturn since February. While the St. Louis Financial Stress Index (STLFSI) continues to show an improving trend (downward sloping line means less stress), the level is still well above levels that have historically started recessions. Apparently from the graph below, STLFSI is just not improving fast enough to keep the CFNAI above a zero reading

Year to date the Standard and Poors High Beta ETF (SPHB) has outperformed the Standard and Poors Low Volatility ETF (SPLV) and the index itself (SPY) which is what you would expect in a rising/bull market. See Figure 2 below: Blue line – SPHB, yellow line – SPLV, and the red and green candle sticks – SPY.

Chart 2. Year to Date: SPY, SPLV, and SPHB

Source: freestockcharts.com

However, if you look at the same chart below, but change the time frame to the past month you can clearly see the market has rotated to lower volatility (risk off) stocks vs. higher beta (risk on) stocks as represented by the SPLV and SPHB ETF’s.

Chart 3 One Month: SPY, SPLV, and SPHB

Source: freestockcharts.com

But the big worry comes down to Spain. Chart 4 shows the past two years of SPY and I’ve highlighted the highly volatile breaks in between a couple of nice runs. Pretty much each period of high volatility has come about from concerns over Greece and the Greek debt crisis. While out of the headlines, Greece has not been solved. Only the can has been kicked down the road. Last December the EU implemented LTRO, Long Term Refinancing Operation. Which basically has given European Banks free money. The thinking was that this would kick the can into 2012. Wrong. We are barely past a quarter into the year, and Spain’s financial difficulties have started to hit the news. Particularly troubling because here in the U. S. corporate earnings have beaten estimates thus far. The expectation, (hope) was that with good earnings, reasonable valuations, and continued ZIRP, earnings would kick off another leg of the bull market. Instead the market has been shrugging off the good news (earnings) and moving on the bad news (Spain).

By summer Greece should be back in the news, and Italy and Portugal should be attracting their fair share of attention as well.

Chart 4. SPY, 2 Years

Source: freestockcharts.com

Bottom Line is summed up nicely in this headline from marketwatch.com on Monday the 23rd:     INVESTOR ALERT Stocks slide as volatility leaps

 Volatility is not good for stocks. While there is still time for President Obama to work some election year magic, and keep the economic expansion going through the fall elections, the markets seem to be betting against him, for now.

But I would recommend being alert, and don’t forget, “Don’t fight the Fed.” If the Fed comes up with a new money producing stimulus, the market could bounce back quickly and it will be “Risk On!” again.

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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