IRA Rollover Management Specialists

Daytona Beach Focus

2011-06-07T09:47:00.000-04:00

Goldman Sachs Said So

2011-05-25T14:59:00.000-04:00

I'm buying oil today. Why, because Goldman Sachs said we should! And when Goldman Sachs speaks, people listen, right? Click Goldman Sachs

Well, my comments are a bit tongue in cheek but it's true, GS is a major influence in the investment world, to put it mildly. They, JP Morgan, Barclays and others, along with hedge and sovereign funds control a mountain of assets, and when they swing their weight behind any asset class, that asset class usually does very well.

I did not buy any stocks however. I bought oil company options instead. I'm sticking to my game plan of owning 'Value' oriented stocks for the majority of our 'Value Plus' portfolio. At the same time I'm using a smaller portion of the portfolio to buy options and ETF's.

The objective is to maintain our 'All Weather' dividend paying stocks while at the same time gain the advantage of leverage with a smaller part of the account.

Current results? Excellent! Our dividend paying stocks are holding up well in this so far modest correction while at the same time our inverse ETF's and options are making outsized gains.

(Note: I sold our AMR call options as it was a trade that moved against us. It is very important to quickly jettison any losers before they take a big bite out of our portfolio values)

The S&P 500 is only down 3.6% as I write so the market remains in what I call a 'mini' correction. I'm not overly concerned about a big market decline but I do make adjustments along the way for protective purposes and what I see as opportunity.

The recent put options and inverse ETF positions I've taken are used to hedge our overall long portfolio and to add potential gains in our accounts.

As always feel free to contact me with questions, and/or post to this blog.

The foregoing is in no way a recommendation for buying or selling securities, or following specific strategies mentioned. The securities markets entail risk.

Bear Market Protection

2011-05-19T14:25:00.002-04:00

The Bulls and the Bears are duking it out, as illustrated by the chart on the left. (Click to enlarge) It depicts the S&P 500 over the trailing 6 months. Note the mid April closing high of 1,370 which was barely higher than the mid February high
of 1,350.

The stock market is facing many headwinds, including the Sell in May idea that grips so many this time of year. Additional negatives include most markets being overbought, the end of QE II on the near horizon, and, well frankly the economy remains on shaky ground.

I've taken some cautionary steps the last few days, pruning laggards and those falling through our stop loss prices. One of those pruned was Seagate Technology, symbol STX. It rewarded us with substantial gains since purchase but was jettisoned due to it's rapid price decline, falling 10% from its mid April high.

I also sold our silver holding, First Majestic, symbol AG. I was certain a snap back rally from the huge silver decline would happen but even though a rally did take place it was too weak to overcome negative sentiment in the silver markets. So AG was quickly sold before significant losses occured.

Our Value Plus portfolio (discussed herein) is built largely on buying dividend paying undervalued stocks with a smaller portion of the portfolio dedicated to fast moving opportunities. The dividend payers are doing well and continue to be held.

It was in the more tactical portion of the portfolio I purchased AG and STX, as well as recent purchases of long dated call options on AMR and GDX. AMR is the parent company of American Airlines and Market Vectors Gold Miners is a gold exchange traded fund (ETF). These positions represent 5% each of the overall portfolio.

We continue to hold two securities as bear market protection. We own S&P 500 August put options and EEV, the ProShares Ultra Short Emerging Markets ETF.

This Value Plus portfolio is our highest risk of the three risk level portfolios we manage. Future blogs and our website will discuss the strategies and techniques used in each of the three.

Disclosure: The foregoing in no way is a recommendation about securities to buy or sell, or strategies to implement. The purchase of securities entails risk.

Cheap Insurance

2011-05-13T23:09:00.001-04:00

The stock market is making me nervous. It's gone up so far, so fast, nearly a double over the last two years.

The old traders mantra of 'Sell in May and Go Away' keeps playing in my head. This of course based on the market being more generous historically in the first and last quarters of the year, while often running into trouble through the summer doldrums.

Let's see, what can I do to protect my clients gains? We continue to hold our 'All Weather' funds that have weathered past storms so very well. We hold significant amounts of cash, both for a buffer and fresh powder to buy future bargains.

I've got it. I'll take a page from the book of heavyweights, successful hedge funds. I'll buy some cheap insurance in the form of long, out of the money put options. For an explanation of options, click here

I recently purchased August SPY put options for our highest risk accounts, Value Plus. As the ETF SPY declines in price the put option increases in value. For an excellent explanation see the Mad Hedge Fund Trader, italicized below.

From Mad Hedge Fund: Let me tell you how it’s done. You are about to learn about the wonderful world of leverage. I currently am 95% in cash and 5% in the (SPY) August, 2011 $130 puts, a bet that stocks on the S&P 500 are going to fall. I usually don’t allocate more than 5% of my capital to a single position. If I am completely wrong because I have been smoking the wrong stuff, or am finally succumbing to my advanced age, the most I can lose is 5%, or $5,000 in a notional $100,000 portfolio.

If I am right, then things get real interesting real fast. When the (SPY) drops below $130, I am suddenly short a whole load of stock. To be more precise, the 5% weighting in the put translates into 16 contracts with an underlying value of $208,000 (16 X $100 X $130). If the market reaches $127, then I reach my breakeven point, covering the $3 premium I initially paid for my put. When the (SPY) drops to $124, I have doubled my initial capital, gaining a profit of 100%. If the stock market then drops 10% from my breakeven point to $114, then I make a mind numbing $20,800, or a 416% return on capital. That would add 20.8% to my $100,000 portfolio. That is not an outlandish target. That would simply take us back to where the index started the year. (I believe this is incorrect. SPY started the year at 125. Maybe he has been smoking the wrong stuff. But the overall premise is valid.)

The bottom line here is that the risk reward is overwhelmingly in my favor, that I am risking a little to make a lot. Mix this in with some old fashioned fundamental analysis, top rate technical analysis, and some of my own secret sauce, and you have a winning strategy. You could make your asset class selection with a coin toss, and still make money with this approach. This is why 22 out of the last 24 trades for Macro Millionaire have been profitable, and why big double digit, or even triple digit returns are within reach.

This is how the best performing hedge funds do it. This is how you can do it. You just have to sit up and pay attention. Just thought you’d like to know. Mad Hedge Fund Trader

There you have it. We're heavily invested in each of our three risk tested portfolios so I see this as 'cheap insurance' and a prudent step to take. If the market goes to the heavens forever then we lose our put money. At the same time our current holdings would more than offset that modest loss.

As always I'll report on how things are progressing.

Note: The foregoing is in no way a recommendation to buy or sell securities. The securities markets entail risk.

Adding by Subtracting

2011-05-12T00:20:00.000-04:00

Sounds like an oxymoron I know but here's how it worked. I sold Merck, symbol (MRK), the drug company for a modest gain. I added Teva Pharma (TEVA) to take it's place. On the surface this seems to be a wash, or so one would think.

But I see it as a major plus and here's why. At a $36.63 close Merck has nearly reached it's 52 week high of $37.68. It's PE of 71 tells me it's expensive based on trailing earnings, and its' prognosis for the next 12 months is moderate at best.

Now for Teva Pharma,
Click chart to enlarge.

Teva has been on the move recently which dovetails nicely with our 'Trend Tracking' and 'Momentum' strategy.

It's trailing PE is only 13 compared to Mercks 71. Note the increasing volume illustrated by the bar chart on the bottom of the chart. Above average volume usually indicates accumulation of the stock, driving the price higher.

Note Morningstar's assessment. Teva has emerged as the generics industry leader thanks to an aggressive history of acquisitions and a highly profitable portfolio of branded pharmaceuticals. Teva's branded pharmaceuticals, massive economies of scale, and vertically integrated operations create some of the highest profit margins and returns on capital in the industry. Although Teva faces near-term headwinds from possible generic competition on its highly profitable drug, Copaxone, we think Teva has the drug pipeline, manufacturing capabilities, and low-cost operations to assure its dominant position over the long term. Click for Morningstar link. Teva Pharmaceuticals

All in all a solid addition to our Moderate and Aggressive risk portfolios.

Buying Silver

2011-05-10T07:48:00.002-04:00

The great flash crash took silver to the woodshed, ripping 28% from it's price in a matter of days. (Click chart on left to enlarge). A sign of things to come for the stock market? No one can know but it's just another indicator of the risk inherent in todays markets.

These type of events also spell opportunity. Each time a corner of the market corrects violently, in this case silver and other commodities, we are given an opportunity to buy at lower price levels. And buy is just what I did.

I bought silver stocks yesterday for our Value Plus accounts. (Value Plus is the highest risk of our three portfolios.) I relish opportunities like this. The whole premise of Value Plus is to buy assets at discounted prices and we were handed this one on a silver platter, pun intended.

How long we'll stay in silver no one can know. The markets remain treacherous and the political and economic landscape littered with landmines. Itchy trigger fingers controlling vast amounts of money hover over buy and sell computer keys all over the world.

As always I'll rely on sell stops and common sense to protect ourselves from serious harm.

Disclaimer: The foregoing is not a recommendation to buy or sell securities. The securities markets entail risk.

Silver Crash!

2011-05-05T20:41:00.002-04:00

Silver, gold and oil all took it on the chin the last few days. Note the chart on the left depicting the price of silver as illustrated by the ETF, symbol SLV.
(Click chart to enlarge) Also note the volume numbers in red at the bottom. Far above average volume indicates this is the probable meltdown of the silver 'bubble'.

In just a few short days the price has fallen 28%! If nothing else this rout in the commodities markets illustrates the value of a stop loss strategy.

For something as volatile as this silver ETF I use a 12% stop loss price, 12% below its prior high of $48.35. What this means is if we had owned the fund we would have sold at the $42.55 level. This would have protected most of our accrued gains and at the same time prevented a free fall in our equity. (We did own a silver/gold fund but sold a bit early on March 15th)

The same concept holds true for everything we own. Our more conservative funds have a 5% stop loss rule, moderate risk 8%, and most stocks 10%. I say most because if we own an extremely volatile stock the stop loss would be 12%. (We own few of those types of stocks however)

There is much gnashing of teeth and ink being spilled trying to explain what these big corrections in the commodities markets may mean. Even more ink is spilled trying to divine the future.

In my view that is a fools errand and fraught with risk. I as always will rely on what the markets are telling me through use of the simplest of all indicators. Those indicators are mutual funds, stocks, bonds, and ETF's. If they're going up I want to own them. If they're going down I want to sell if they pierce their respective stop loss prices.

So far the broader stock market has not been hard hit. Since the recent trailing highs the major domestic averages including the S&P 500, Dow 30, NASDAQ and small company Russell 2000 have only corrected 2% to 3%. Certainly nothing to be alarmed about.

I will remain vigilant. I'll use the declines for buying opportunities when the markets show signs of recovery, or take protective measures if further declines overtake this Bull Market recovery.

The Osama bin Laden Effect

2011-05-02T09:35:00.003-04:00

Looks like the stock market is getting an energy boost. News of the death of Osama bin Laden has rocketed across the globe with predictable effect.

The stock futures markets are pointing up, gold and oil down, and there is joy across the world, at least in democratic societies. The same cannot be said for some of the Muslim world. Contrast the comments below to see what I mean.

Barack Obama: "The death of bin Laden marks the most significant achievement to date against al-Qaeda."

George W. Bush: "This momentous achievement marks a victory for America, for people who seek peace around the world, and for all those who lost loved ones on September 11, 2001."

Benjamin Netanyahu: Israeli prime minister: "This is a resounding triumph for justice, freedom and the values shared by all democratic nations fighting shoulder to shoulder in determination against terrorism."

Ismail Haniyeh: head of Hamas in the Gaza strip: "We condemn the assassination and the killing of an Arab holy warrior. We ask God to offer him mercy with the true believers and the martyrs."

It's the age old question, terrorist or freedom fighter? I guess it all depends on ones' perspective.

Actually the market had broken out of the mid April level of 1,342 on the S&P 500 and currently stands at 1,363 as I write, for a 1.5% gain in just two weeks. It appears the bin Laden news will give the markets a short term spike but we may be in over bought territory and ripe for at least a moderate pullback in the near term.

We're 100% invested in the stock market for Value Plus, our most aggressive account. For Prudent Growth, our moderate risk account we're holding 20% cash, and our most conservative, Preservation Growth is 30% cash.

Tired Stock Market

2011-04-16T11:43:00.003-04:00

The stock market is looking a little tired right now. It's not been able to breach its mid February high of 1,342 on the S&P 500.

The approaching week could be telling because earnings season will be front and center. Big bank names including Citigroup and Wells Fargo will be reporting. Also economy bellweathers including Apple, Intel, GE and AT&T.

In addition there will be reports on the economy, home starts, home sales, initial jobless claims and others. Each bears watching closely for clues on the direction of the economy and markets.

My best idea for today is if you qualify be certain to make an IRA contibution by Monday, final day for on time tax filing and 2010 IRA contributions. Use the tax calculators at Dinkytown click link here or ask your accountant to estimate the amount of tax savings you will enjoy. Once those tax dollars are in government coffers they are forever lost to you.

For a more detailed analysis you can start the Turbo Tax online software for Free click here until you complete the online return. You only pay when and if you actually choose to print or electronically file the return.

You may file an extension if you need more time but remember you must make your IRA contribution by April 18 to be effective for tax year 2010.

Disclaimer: Be certain to seek advice from a tax qualified source for clarification or any questions you may have.

Stop Loss Revisited

2011-04-05T16:12:00.001-04:00

Due to a number of responses and comments it seems there is some misunderstanding about the use of stop loss techniques used in managing investment portfolios. I thought it was time to explain in more detail how I use them in managing our portfolios.

The use of stop loss strategies is all about Risk Management. It's about protecting gains in each security we own, overall portfolio values, and most of all protecting our lifetime financial security.

You don't have to go back very far in time to see the devastation visited upon not just the stock market, but the real estate market as well. The fallout has been substantial, causing far reaching financial hardship for so many people and institutions.

To protect my clients from losses I place a stop loss price point on every security we buy. It ranges from 5% on more conservative securities like bonds and bond funds, to 8% on stock and hybrid funds, to 10% on most individual stocks. The foregoing are rules of thumb because some stocks are more volatile than others so we may give those more room, 12% for example.

I use 5%, 8%, 10% and 12% because we don't accept larger losses, but at the same time I don't use smaller numbers like 2% or 4% because many securites, funds and stocks alike, routinely decline by those amounts on a weekly, monthly sometimes even daily basis. So we don't want to sell too soon only to watch the price quickly recover and go on to higher highs. We are willing to accept the smaller risk in order to reap the potentially larger returns.

Here's how it works in practice. I purchased Big Lots (BIG) for $32.48 on 1/20/2011. I immediately placed a stop loss price of $29.23, 10% below the purchase price. This means if the stock goes to the $29.23 price level it becomes a sale candidate. It's not automatic but goes to our Red Flag list and if price deterioration continues it is sold.

If the price rises after purchase, which it did, I then move the stop price up to 10% below the new, higher price. For example, as BIG moved upwards through Feb and March I continued to move the stop loss price higher, always 10% below it's highest price.

As I write this the current price of BIG is $44.08 so the trailing sell stop price is now $39.67, 10% below the current price of $44.08. (I actually use the daily closing high, not the intraday high)

I also maintain a stop loss price point on the major indexes. The reason is to make a judgement as to whether or not we are in the early stages of a new Bear Market. If my indicators tell me we are then all securities negatively affected by a Bear Market are candidates for sale. More on this at a later date.

Cautious Buying

2011-03-20T12:10:00.001-04:00

Our expected 'mini' correction has arrived! These corrections are to be expected even during Bull Markets. In fact they should be welcomed. It's an opportunity to buy at discounts and continue building and improving our portfolios. (Click chart to enlarge)

From February 18 through March 16 the S&P 500 declined 6.5%, NASDAQ down just over 7%, Dow Industrials, ditto by nearly 6%, and the Russell 2000 index gave up over 6.5%. Time to buy, no?

Yes! I used this correction to selectively buy for all accounts. For conservative accounts it was a balanced Vanguard fund, very low key and tortoise like in it's movements but a solid long term performer.

It was a First Eagle buy for Moderate risk accounts. First Eagle has been a favored 'All Weather' fund of mine for years but even it was hard hit in the 2008 meltdown. I sold it as it triggered my Stop Loss price point well before the markets tanked in a big way. I've bought replacements throughout this Bull run but decided it was time to buy back First Eagle as well.

I've embarked on a buying spree for Aggressive accounts! In the last few days I purchased British American Tobacco, Coke, BCE, a Canadian telecommunications company, mortgage lender American Capital, NRG Energy and drug giant Merck.

The Aggressive risk account has morphed into a pure stock portfolio modeled after the Ben Graham and Warren Buffet value school with some additional wrinkles including momentum and trending.

It's too soon to determine if the markets have righted themselves but I'm confident we have the systems in place to protect against severe declines and take advantage of buying opportunities.

As always feel free to comment or question.

Disclaimer: Advisor and advisors family owns many of the aforementioned securities. The above in no way is an endorsement or recommendation of securities to buy or sell or strategies to follow.

Difficult Days Ahead

2011-03-15T10:17:00.000-04:00

A catastrophic earthquake in Japan, followed by the devastating tsunami, and now nuclear plant explosions and radioactive fallout. These are the disasters being experienced on day 5 of the worst calamity faced by the Japanese people since World War II.

Even though these events are taking place thousands of miles from our shores they will have consequences for those of us across the world.

The investment markets are tanking as I write this morning. The S&P 500 is down over 2%, Dow Industrials off 2%, Nasdaq crushed by 2.5% and the Russell small company index down over 2%.

The Japanese market is of course being bludgeoned, down an astronomical 5.5% as measured by iShares Japan Index, symbol EWJ. EWJ is the exchange traded fund holding Japanese blue chip stocks including Toyota, Honda, Canon, Sony, etc.

For more on Japan and the fallout tune in to one of my favorite commentators here.

I have taken steps to limit the damage to our financial security. I sold gold and oil in all accounts holding them as well as BYD Co. and Bank of America in our Aggressive risk accounts. One might think gold would do well in times of fear and uncertainty and it often does. But gold is sinking fast today so I sold CEF at a substantial gain.

The concern of course is just how long and deep this correction will be. The answer is, no one can know. What I can do however is become defensive, make adjustments as required, and even search out those nooks and crannies of the market that will hold their own and even gain value amidst the turmoil.

The only things looking good at this point are U.S. treasuries and the dollar, the usual suspects when it comes time for a flight to safety.

If this is just a short term correction, as frightening as it may be, we can expect a snap back rally in due course. If it's the early stages of a deeper and longer term correction then we are prepared. If the indicators we track begin a decent into serious Bear Market territory we will use our predetermined stop loss signals to Exit the markets and go to Safe Harbors.

Bulls & Bears Collide

2011-03-07T17:05:00.001-05:00

The markets are running into resistance and some seem to think the end is near. Quoting from Anthony Mirhaydari's article on Money Central, "After a massive, uninterrupted rally investors are panicked on a scale not seen since the end of the last bull market............. Wall Street traders, for their part, are frantically preparing for more losses".

Click link for complete article) Investors Scramble As Historic Uptrend Ends

His article talks about the massive move by traders on Wall St preparing for a major decline, and the steps they're taking to avoid losses in their accounts.

I for one do not fall into this camp, at least not yet. The current correction, beginning a few days ago, has caused barely a hiccup on the major exchanges.

Note the chart to the right. It's the S&P 500 index.
It has barely budged, down just 2.5% over the last
few days. (Click chart to enlarge)

The NASDAQ is down 3.3% over the same period,
and the Russell 2000, the small stock index, is down an anemic 3.1%. Hardly the kind of decline to
inspire panic on anyone's part.

However, events unfolding in the Middle East, rising oil and commodity prices, gridlock in D.C., all bear watching closely. Any of the foregoing, as well as unforeseen events, could cause the wheels to come off this two year market advance.

Our holdings are weathering this modest storm nicely. Oil, precious metals, diversified "All Weather" mutual funds, all in the black over the trailing week. The only holdings leaking red are two newer purchases, Bank of America and NRG Energy. We'll watch them closely and sell at our stops if it comes to that.

As always feel free to comment or question.

Metals Volatility

2011-02-21T23:19:00.000-05:00

Ouch, stopped out of silver in late January and what happens? Turns out that's the bottom and it's now back on a tear, up about 20% since then. But that's the nature of the beast. Volatility and whipsaws are part and parcel of the investment world.

The good news? I recognized the precious metals turnaround early so took a position in Central Fund of Canada, symbol CEF, on January 31. CEF holds gold and silver in Canadian bank vaults.

Why the rapid turnaround? We can certainly look east for the answer to that, the Middle East to be more precise. The uncertainty surrounding the events in Egypt, Tunisia and now spreading across much of the Arab world has led to uncertainty and even fear in some quarters.

That region of course holds much of the worlds oil reserves so anytime there's uncertainty there, which is fairly often, the prices of metals and other natural resouces usually spike to higher levels, at least in the short term.

Where do we go from here? As usual my crystal ball is cloudy. Domestic stocks have nearly doubled the last two years with barely a hiccup since last August. Metals are at multiyear highs, grains and other commodities also at high levels, nary a bargain to be found.

So my strategy has become watchful waiting. Waiting for the inevitable correction that lies ahead, which would allow us to use our remaining cash to buy the bargains that would surely appear.

Meanwhile we'll stand pat with the our 'All Weather' stalwarts, mutual funds that withstand 'modest' market declines. We also continue to hold a smattering of stocks performing well for us.

I was forced to sell Cisco recently due to the price piercing our stop loss threshold of 10% on stocks. I still like Cisco and may buy it back at some point.

Always remember, never accept large losses on any individual security or your portfolio. Always, always have a predetermined exit strategy with anything you buy. The last ten years have taught us that no one, regardless of age or circumstance, can afford the degree of loss visited upon so many.

Caution: The foregoing is not meant to be investment advice. Buying securities entails risk.

The Luster is Fading

2011-01-26T11:20:00.000-05:00

The luster of metals has been fading in recent weeks. Gold as represented by the exchange traded fund GLD is down nearly 7% since the highs of early December. The silver exchange traded fund, SLV, has been smacked even harder, down nearly 14% from its recent high.

These are not earth shaking moves, maybe even a retrenchment before going on to higher highs. We shall see. The silver move did however breach our sell stops so we sold SLV.

But compare the six month charts. The S&P 500 looks positively tame compared to silver. Makes you wonder when the next shoe will drop, doesn't it?

Silver (Click chart to enlarge)

S&P 500 (Click chart to enlarge)

Large cap stocks, as represented by the S&P 500 chart, are out of the gate quickly this year, up nearly 3% year to date.

We're off to a slower start primarily due to owning many of what I call the 'All Weather' type of funds. They're also sometimes labeled tortoises, lumbering along to the finish line. But we all remember who crossed the finish line first.

I remain confident about the year ahead, albeit with some heart wrenching corrections along the way. The high frequency traders remain with us, accounting for 70% of overall trading on the exchanges according to the latest estimates. That type of trading and amount of money will surely lead to continuing roller coaster moves.

All the more reason to maintain a close watch on our stop loss points, both on individual securities as well as key market indicators including moving averages on the S&P 500, Russell 2000, and NASDAQ.

401k fees

2011-01-12T09:01:00.000-05:00

More good news on the 401k rollover front. There are now many more attractive solutions to the question, how do I best manage my 401k account?

401k's have been a boon to the working populace for many years now but they have been plagued by two particularly intractable problems. First, many 401k's have been hindered by multiple layers of fees which of course is a drag on performance.

Second, many 401k's have limited and/or mediocre investment funds. I've analyzed numerous plans over the years and found many if not most have a very limited investment menu. And often those limited selections have been mediocre performers at best.

Two likely solutions are 1) Even if you're still working with your company some plans can be rolled over, fully or partially, to your own personal IRA. (See plan documents) 2) If you're leaving the company you can of course roll your plan to a personal IRA.

In addition, you can now roll straight into a Roth IRA, unlike the past when you had to roll to a traditional IRA first, then to a Roth. Doable, but cumbersome.

(Caution: Rolling directly to a Roth incurs tax liability, just as converting from a traditional IRA to a Roth). See more at the link from Morningstar below.

401k Rollover

In summary, owning and controlling your own personal IRA is often a better choice. You may have a far wider selection of investment selections, potentially lower fees, and the ability to have tax advantages with conversion to a Roth IRA.

Auld Lang Syne

2011-01-01T14:50:00.002-05:00

Happy New Year to all! My best wishes for a happy and prosperous 2011, and beyond.

In keeping with our ongoing journey of life, learning and growth I recommend Todd Harrison's article at Minyanville. "Things I've Learned"

I would like to add to the list. Even though we've had a fairly solid year in the investment markets in 2010 it fell short of our objectives. My lesson? Follow my convictions. When the markets are telling us to buy, Buy. Do not let emotions (fear, euphoria) direct our actions.

That's all for now. Talk to you soon.

Storms and Sunny Weather

2010-12-29T11:46:00.000-05:00

While the MTA (Mass Transit Authority) MTA, the city of New York and most of the Northeast find themselves digging out of the recent blizzard, markets across the world continue to bask in the sunshine of a 'new' bull market.

The S&P 500, Dow Industrials, Nasdaq, world stock markets, commodities, nearly everything is celebrating a banner year.

Since the lows of March 2009 the major domestic indices have nearly doubled, (the Nasdaq has more than doubled) and most of the world's major bourses have exceeded even that.

So why do I feel a sense of foreboding? Maybe it's just my skeptical nature, or maybe it's due to nearly everyone predicting 2011 will be more of the same. Even the so called small investor is upbeat and buying stocks and mutual funds.

I've written recently about my belief the markets will continue higher in 2011 and I still anticipate that to be the case. There truly are 'green shoots' pushing up throughout the economy. Make no mistake though, this recovery remains fragile and could be derailed by any number of events.

We're postioned very flexibly at this time. I sold most bond holdings recently due to my belief interest rates will continue higher. Higher interest rates usually push bond values down.

We continue to hold precious metals, high yield bonds, Asian funds and our core mutual funds. The core funds are what I call "All Weather" funds because they perform well in up markets and resist decline in market corrections.

We're now 20% or more cash in all accounts which provides us fresh capital to take advantage of any sell offs in any markets. This current run has been underway with little in the way of correction for many weeks now so we're probably overdue for at least a minor hiccup before the bull run resumes.

My best wishes to all for a Happy and Prosperous New Year!

Where Have All the Bond Funds Gone?

2010-12-20T11:40:00.000-05:00

Gone to the graveyard every one. Just a play on the old Pete Seeger song of the 1960's, "Where Have All the Flowers Gone", but you knew that didn't you?

What is gone are our bond funds. I've sold all our 'straight' bond funds, straight meaning all funds we've held that are 100% weighted in bonds. All that is, with the exception of our high yield fund, often referred to as junk bonds.

Don't let the junk moniker deter you though, this type of fund has usually performed quite well in sideways markets. It's a 10% position and has rewarded us with a 15% return since purchase in early Fall 2009.

All other bond funds have been cut loose. The treasury, emerging market, high quality bond funds, all quietly ushered out the door. The reason? Since early November bonds in nearly all categories have declined, including the high yield variety. (Our municipal bonds were sold long ago)

Bonds are nothing more than a promise to pay interest and return the principal invested at some future date. Well, that promise is looking very shaky among government entities at all levels, both foreign and domestic. So we're no longer a buyer or holder of that shaky paper.

And in the what was I thinking category? It was my purchase of a U.S. dollar long fund, UUP, a couple months ago. I figured since nearly all currencies were sliding over the edge the dollar would hold up best and provide positive returns.

Well, I recently jettisoned it as well. Fiat money (paper) is only as good as the confidence in which it's held. And the lack of confidence is palpable across the world. The tremendous run of gold and silver bears testimony to that point.

We're now more heavily in cash than we've been in a long time, 60% for Conservative Risk accounts, 30% for Moderate Risk, but just 2% for the Gunslinger, I mean Aggressive Risk account.

I am still awaiting that correction I talked about in my last post and now we have the cash to take advantage of buying opportunities. Those opportunities will not be bonds, you can be sure of that.

Double Top?

2010-12-03T12:26:00.000-05:00

Are we in for a breather here? After the big rally in recent days that may be the case. The chart to the left depicts the S&P 500's big run since September.
(Click chart to enlarge)

This run to the top has been fast and furious with the S&P 500 up about 19% since early September! That's an eyepopping move in anyone's book and a recipe for a potential correction.

Adding to a likely year end correction is tax selling by many over the last few weeks of the year. Some will be booking gains to get a jump on the possible higher rates next year. Others will be pruning portfolios to rid the deadwood and reap the tax deductions.

Note the potential forming of a double top over the last few weeks. This is often a sign of at least a short term 'mini' correction waiting in the wings.

I did some selective buying in mid November to take advantage of a correction in precious metals and foreign markets. I bought silver and palladium for moderate and aggressive risk clients and more Asian funds and balanced mutual funds for all accounts.

Even though I expect a near term correction we will stand pat. We are long term investors, not short term traders. It's only the longer term, deeper corrections we try to avoid. Our indicators are nowhere near dangerous territory in that regard.

There's another indicator that bodes well for this continuing bull market. That indicator is the national election cycle. I've scoured stock market records back to 1926 and they tell a compelling story.

Since 1926 there have been 21 presidential elections. Based on the S&P 500 there have been only two calendar years of losses in the S&P 500 in the year preceding the election. That's a 95% success ratio! Pretty good odds for an upbeat 2011 don't you think? No guarantees, and expect numerous 'mini' corrections along the way.

Having said all of the above, we should remain vigilant. Keep our stop losses in mind, both on individual securities and portfolio basis. Any number of 'Black Swan' events could derail this so far spectacular bull run since March 2009.

Note: The foregoing are not to be construed as recommendations or predictions.

Risk is High

2010-11-16T11:04:00.001-05:00

Risk is high in virtually every asset class.

Stocks as measured by the S&P 500 have gained nearly 17% since September and the trailing and forward looking Price Earnings (PE) ratios are right at 15. A PE ratio of 15 has historically signaled stocks being fully valued.

(Click above chart to see 10 year treasury interest rates)

Gold and other commodities are up 50% or more in the last year alone and many are now correcting. China and other Asian markets have enjoyed dramatic runs with many Asian and Latin American stock markets up 25% or more in the trailing 12 months.

All this strikes me as a time for correction, and it may have just begun. The S&P 500 is off 3% the last few days. Gold is correcting, off more than 5% as measured by GLD, the gold ETF.

China has raised interest rates and most of the Asian markets are moving to the downside over the last few days. About the only things still in the doldrums are real estate and job creation.

Added to all this is a recent rise in interest rates. 10 year treasury securities rates have moved from a recent low of 2.3% to a current 2.9%. (See chart above) This has reinforced my belief that bonds are in the danger zone, and it's time to lighten holdings in that asset class.

I've done just that over the last few weeks, selling a number of bond holdings including the emerging market ETF, symbol EMD. EMD served us well, rewarding us with a double digit gain but it's value has been eroding of late.

I've also recently taken a position in TBF, an ETF tied to interest rates. When rates move up, TBF moves up. When rates fall, the price of TBF falls.

Many people, individuals and pros alike, believe bonds are low risk and conservative. Those who hold this belief are wrong.

Rising interest rates can have a devastating effect on bonds. The inflation fed 1970's and early 1980's clearly proved this. Bonds were crushed in those years, losing half or more of their values by the time interest rates soared to the high teens.

It took a strong Federal Reserve led by Paul Volcker to bring inflation under control which in turn led to the strong bond returns of the late 1980's, the 1990's, and even the 2000's. The 2000's, the same decade the stock market experienced two bubbles and decimated many portfolios.

So be careful out there folks. It is a time for caution, even for bond owners.

Disclaimer: The above is in no way recommendations or investment advice.

It's the Economy Stupid

2010-11-01T13:49:00.001-04:00

It's always the economy. Bill Clinton used the economy slogan to sweep into office, ousting George Bush the elder. The very same George Bush who basked in an approval rating of 90% just one year earlier.

Yes, there are problems with health care reform, wars on other continents going badly, and constant bickering and gridlock in Washington.

All the above are deadly serious. But there are some things that trump all that. Not having a job, losing your home, and trying to hold your head high when your world is crumbling around you. These are the things that crush the spirit, and leaves hope hanging by a thread.

The current administration and American corporations have to understand this, come together, and recognize the defining challenge of our times. That challenge is putting American workers back on the job.

The solution is, as always, incentives. Incentives to businesses and consumers alike. Government needs to provide lubrication to all who make our great economy run.

Incentives could come in the form of tax breaks. Tax breaks to consumers, who after all drive 70% of the economy.

Tax breaks to businesses, particularly small business, for it is they who provide the majority of the jobs in this country.

Government needs to begin ratcheting back the various welfare and bail out programs, for they provide disincentives to people and companies alike.

Companies must begin rewarding employees on the production floor more in keeping with the true value they provide. When upper management reaps hundreds of times more reward than the people who provide the labor, well something is wrong with a system that encourages that behavior.

In the end it will be full employment that puts us back on course. Employment renews confidence, and with that confidence the ability to solve all challenges will return.

The Big Boys are Selling

2010-10-28T14:52:00.000-04:00

The Wall Street pros are selling says Anthony Mirhaydari.
Click http://articles.moneycentral.msn.com/Investing/top-stocks/default.aspx?feat=53456c2b-3b16-4868-b581-c44d37ab0324

If the pros are selling, shouldn't we all follow suit? My answer, a resounding no! We're not traders, we're not high risk takers, nor are we market predictors.

We have a system called 'Trend Tracking', and as long as the trend remains up, we'll stay invested.

Any 'garden variety' correction in the 7% to 10% range is to be expected, particularly in markets as volatile as they've become in recent years. Not only expected, but welcomed. These corrections allow us to buy at lower prices, which could enhance our returns over the long run.

However, if our technical indicators and 'stop loss' points are violated I consider that a trend reversal and will exit our investments, and even get out of the markets completely if warranted.

We've sold some of our bond holdings in recent weeks to free up cash. If and when a market correction rears its ugly head we'll be able to use this cash to buy the very equities the so called 'Wall St Pros' are selling.

Speaking of corrections and buying, gold has recently corrected off its highs so we are certainly interested in adding that asset to our portfolios. We are also seriously considering buying interest rate hedges.

Interest rates are at historic lows and will almost certainly rise in the future. I'm looking at ETF interest rate hedges including TBT, TBF, PST and others.

These ETF's are designed to track interest rates so they should follow rates on the way up just as they've done on the way down. Interest rate direction is notoriously fickle so we'll move cautiously.

Caution: These types of investments are not suitable for everyone. Extreme caution must be paramount before buying interest rate hedges discussed above.

A Canary Sings

2010-10-16T08:42:00.001-04:00

The miners of Chile' have been freed from their would be tomb and the world rejoices! This event captured the worlds attention for months and rightfully so. It's one of those all too rare examples of humanity working together and accomplishing amazing things.

Meanwhile the proverbial 'canary in the coal mine' is singing and we need to listen. That canary is the likely bottoming or near bottoming of interest rates and possibly the beginning of a new, epic rise in rates as the Fed continues it misguided battle against an anemic economy.

By misguided I mean the near promise by the Fed chief to continue injecting massive amounts of cash into the economy in order to bring about inflation. Bad idea! The objective of jump starting the economy is obviously sound, it's the methodology that's wrong.

This continuing saga of flooding the economy with 'phantom' money and incurring massive budget deficits moves this nation closer and closer to an inflationary environment. History has proven time and again inflation is very difficult to contain once out of the box.

My solution for a struggling economy? Tax cuts. Tax cuts weighted heavily toward the middle and upper middle income taxpayer, tax credits for lower income folks, and modest cuts for the upper income and the wealthy.

After all, isn't it well known and understood 70% of the economic engine is driven by consumers? And what better way to jump start the economy than by quickly putting more cash into the hands of the people most likely to quickly spend it.

You know, I think I'll go to Washington soon to testify before some Congressional commitee on this very subject. After all, I think I know as much about the economy as Stephen Colbert, possibly even a bit more.

I'll spread my tax reduction story to all who will listen. And oh by the way I'll then inform them we have too many eggheads from academia in Congress, the Treasury, the Fed and, well, throughout government at every level. What we need is a few more hard nosed business people in those positions, people who live in the real world where jobs are created, and peoples needs are met.

Closer to home my strategies of raising cash continues. I've sold bond funds recently, the very asset class most hurt by rising inflation. The plan is to begin buying more equities over the next few weeks and months.

As always feel free to comment or raise questions. I will respond ASAP.

A Bit More Pruning

2010-10-04T11:44:00.000-04:00

In the interest of raising additional cash and avoiding a potential market correction I've made a couple more sales recently. They include the commodities funds we've held for some time, as well as the Aussie dollar.

It's not that I expect any serious market sell off, nor do I expect it to last long when it does appear. It's selective pruning of our portfolios to take advantage of future potential in the investment markets.

I've used some of the cash to make a new purchase today, UUP, the ETF dollar bull. The dollar has declined nearly 12% since it's recent high and I believe that's overdone. The so called green shoots in the economy will in time strengthen the dollar and we may be buying at or near its' bottom. My belief remains intact that we are in a new Bull Market and it will continue to run for some time.

Even bull markets have corrections however and early Fall is historically a prime time for corrections. This September could almost be called an aberration because it not only overcame long term history but in near record fashion.

Post correction my sights remain set on the under performing sectors of the economy including oil, financials, and health among others. In addition I will likely take new positions in emerging markets for they are the areas where the greatest growth is occurring.

You know sometimes I feel like a kid in a candy store, so much that beckons but so little in my pocket.

(The foregoing in no way is making investment recommendations or suggestions. Investing in the securities markets entails risk of loss of capital. One should always assess whether risks taken are appropriate for each individuals situation)

Time to Raise Cash

2010-09-22T13:41:00.001-04:00

Yes it's time to raise some cash. The stock market has been range bound for months now and recently pierced it's upper level at 1042 on the S&P 500.

I sold our 10% REIT position today and booked a double digit gain with a relatively short holding period. It appears to be our weakest holding and would likely be the most affected by any market correction.

The funds will be held in money market for the time being. If the markets correct over the next few weeks we'll have fresh powder to fire with our 20% cash position.

Some areas we're monitoring closely are currencies, health, semiconductors and a few single nations. All of the above have not participated in the recent rally to the extent enjoyed by so many other sectors and countries.

I believe we're well positioned for a correction, or even higher highs. We continue to own domestic and foreign bonds, currencies, agriculture and Asia, as well as a small bear market hedge position.

Commodities Pointing the Way

2010-09-17T11:53:00.000-04:00

Commodities have been on a tear of late, blasting off and far surpassing the overall stock market. The last month has seen the S&P 500 up 4.5%, a huge move in a short period of time, but commodities have rocketed to the moon!

In the same period the sugar ETF (exchange traded fund) is up 27%, while agricultural ETF's across the board have gained from 10% to as much as 19%. And of course precious metals are up significantly as well. In fact gold has reached an all time high of $1,276 per ounce.

Can all this be a harbinger of things to come, namely inflation, or worse, stagflation? All the money being created out of thin air by the Fed (federal reserve board) has to sooner or later filter (surge?) into the economy. This in turn will likely lead to an inflationary effect, which in turn would lead to higher interest rates.

The big question is, will all this lead to job creation? So far the Fed's printing presses have not had much effect on the unemployment rate.

There are now nearly 1,000 ETF's available for purchase, targeting commodities, regions of the world, single countries, single stock and bond indexes, and just about anything else that comes to mind.

I've taken advantage of the aforementioned trends in commodities by buying agriculture and cocoa ETF's in recent weeks. I missed the sugar and coffee advances but then we can't get them all.

Or can we? I continue to refine my systems to identify trends in their infancy. A good 'trend tracking' system and ETF's across so many asset classes bodes well for any investor seeking to participate in bull markets while avoiding the damaging bear markets.

Liftoff!

2010-09-03T14:48:00.001-04:00

We have liftoff! In just one week the market has rocketed upwards to the tune of 5.25%! That's a lot of thrust for a market that was declared on life support these last few months.

What happened, and can/will this continue? To the first question, a number of things were reported but it was mainly better news on the job front. Fewer jobs were lost than expected, even though the 'official' unemployment rate moved slightly higher, to 9.6%.

This from Phil Orlando of Federated Investors. "It was a pretty encouraging jobs report. Not only were the August numbers better, but we also got positive revisions in June and July," said Phil Orlando, chief equity market strategist at Federated Investors (FII). "This puts employment in better stead than what we thought yesterday."

More on this from Money Centrals 'Market Dispatch' at the link here. Market Info

As to the second question, can it continue? My short reply, I don't know. The markets remain very volatile. Each new economic report is sliced and diced, quick decisions are made, and itchy trigger fingers rush to either get on board before it's too late, or rush to the exits, again, before it's too late.

We continue to outpace the markets, showing positive returns across all accounts. Our heavy contingent of bonds in the conservative accounts have performed admirably. These accounts are ahead, up 4% to 5% for the year.

Moderate risk accounts are lagging a bit, up just 1% or so. Still, that's about even with the Dow Industrials and well ahead of the S&P 500. The Dow is barely in the black and the S&P remains in the red for the year to date.

Potential changes lie ahead for all our accounts. I expect to take hedging positions soon. The plan is to buy ETF's that will appreciate as treasury yields increase. Interest rates are at historic lows and will likely rise as economic activity increases.

As interest rates rise bond values will deteriorate so we must protect ourselves from this potential event. We could sell bonds, buy the hedges, or both. My plan is to begin by taking the hedge positions.

An economic revival is not a given, considering the current and potential problems that remain. So we will, as always, be prudent and move cautiously.

Stay tuned for coming attractions.

Volatility, The One Constant

2010-08-12T12:03:00.000-04:00

The markets have remained a treacherous place, up dramatically one day, a stomach churning downdraft the next. Each bit of news is instantly pounced upon and digested. Itchy trigger fingers then rush to tap tap tap computer terminals, moving billions of dollars from one asset class to the next.

I'm using these steep declines to buy more of the investments that figure to do relatively well over the next few months. I stress next few months because the Wall Street mantra of 'Buy and Hold' is on hold for some time to come. We cannot afford to hold when the markets are in free fall. The 2000's were very different from the 1990's on that point and I'm hoping the necessary lessons were learned by investors everywhere. I believe the volatility we've experienced the last couple years is likely to continue.

I've used the current decline to buy an open end mutual fund (PRPFX) with a stellar track record and a history of performing well in difficult markets. It's 2008 calendar year performance was -8.36%, not so bad when you consider the overall market was down -36.70% that year as measured by the S&P 500 index funds including SPY and VFINX. (Note: This communication is not intended as investment advice or recommendations).

Our investments of bond ETF's and MF's held up quite well in yesterdays market free fall. I did prune the portfolios a bit, selling one of the Asian ETF's. Our real estate fund has taken a modest hit the past week but it's still showing significant gains so will be held. All bond holdings are showing gains for the week, while our remaining equity funds are off just 1% to 2%. Not too bad considering the major indexes are down more than 3% for the week.

Sue and I are still on the road, visiting friends and family in Maine. But always, always monitoring the markets and our clients financial well being.

How Low Can It Go?

2010-07-22T09:08:00.001-04:00

The low I'm speaking of is not the stock market, although that too is open to question. No, the lows I'm speaking of are interest rates.

Interest rates across the board are lower than I've seen over my 30 year investing career. Consider this.

The rate I most closely track is the 10 year treasury. It's currently hovering in the 2.9% range, down from 4% just 3 months ago, and down from 6% ten years ago.

30 year mortgage rates, if you can get a loan, are currently 4.6% and likely poised to go lower still. And to think a very smart person informed me many years ago that we would never again see single digit rates in our lifetimes.

All this has led me toward overweighting our portfolios with bonds of many stripes, upwards of a 70% weighting in the more conservative accounts. Everything from domestic corporates to U.S. treasuries and government backed agency bonds to foreign government, both mutual and exchange traded funds. We also hold positions in the strongest currencies including Swiss and Australian.

My concern at this juncture is more asset deflation may lie ahead, across broad markets including stocks and real estate. Dare I use the D word, as in Depression? There is that very real possibility. It may not look exactly like the depression of the 1930's but with official unemployment numbers of 9.7%, the real unemployment rate much higher, and miniscule job growth, well, the near term future looks less than rosy.

So batten down the hatches for it looks like a rocky and uncertain road lies before us.

Another Bounce?

2010-07-11T12:14:00.000-04:00

Even though the S&P 500 gained 5.6% in the short span of four days last week it's too early to divine whether this is a lasting reversal or just another short term bounce.

This week may give us an indication of the path ahead. Earnings season is once again upon us and some heavyweights will be reporting.

A host of bellweather companies report earnings and guidance this week, including Alcoa, JP Morgan Chase, Bank of America, Citigroup, GE, Intel and Google. These reports should give us some indication of the strength of the economy.

My favored technical indicators are teetering on the edge. None are flashing strong buy signals, but then none are flashing strong sells either.

I believe we're in what is sometimes referred to as a "traders market." It's generally characterized by greater than "normal" volatility, with no clear direction. This can be a difficult climate for most investors, and certainly difficult to make gains.

I remain cautious, heavily invested in bonds, currencies, Asia, and a REIT ETF purchased recently. This strategy has served us well this year as we have not suffered the steep losses as experienced by the indices during the recent corrections.

My intent going forward is to buy equities early in the bounces and sell before the corrections. As always holding to the trailing stop loss price points along the way.

We're heading north this week, first to North Carolina then on to New England. As always I'll be monitoring the markets and ready to make any adjustments needed.

Danger Zone!

2010-07-01T22:27:00.001-04:00

The signals are there, we just have to heed them. And the markets are flashing danger signals everywhere we look.

One of the key indicators, the 200 day moving average, has actually begun turning down. Click the chart below to enlarge and see what that may portend for the future. You'll note the last two times the moving average line (in orange) moved down, 2000 and late 2007, led to catastophic losses for so many investors.

(I've selected a 10 month moving average for clarity but it equates to the 200 day)

Numerous reports today roiled the markets in the early going. First-time jobless claims rose more than expected, manufacturing in the U.S. weakened and pending home sales tumbled.

All this on top of recent reports of economic slowdown in China, continuing banking problems here and abroad, and tepid expectations for the jobs report due out tomorrow.

Many of our recent buys fell through their stop loss levels so they were sold. Sometimes the best laid plans don't work out so adjustments need to be made.

I have moved to 'safer harbors', buying the Swiss franc and more bonds. We remain heavily invested in government and corporate bonds, an Asian ETF, and now Australian and Swiss currencies.

All eyes will be on the jobs report tomorrow. If it's more negative than expected I'm afraid we'll be in for a long hot summer. We'll be prepared in any event. Stay tuned.

Cautious Buying

2010-06-24T09:34:00.000-04:00

My recent posts have talked about markets all over the world teetering on the edge, with uncertainty the order of the day. But in recent days I’ve been doing some cautious buying.

The markets have, in fits and starts, begun to move to the upside, lurching above the all important 200 day moving average. This was the final green light I needed to begin shopping for bargains to fill our portfolios.

Over the last few days I’ve purchased Australian stocks and the Aussie dollar, diversified oil exploration companies, and technology. All this within a number of exchange traded funds (ETF’s), my favored investment vehicle.

The above are additions to our current holdings of high yield corporate bonds, government backed agency bonds, and Asian funds. We continue to hold a healthy cash position across all accounts awaiting further buying opportunities.

One potential buying opportunity is gold. I’m waiting (hoping?) for a pullback so I can buy gold again. Due to its volatility I’ve been in and out of the ‘barbaric’ metal a couple times in the last year or so.

I believe gold will, sooner or later, go much higher. My belief is based on inflation being baked into the cake by governments across the world. The printing presses are operating at full speed in the U.S. and other nations. Sooner or later that recipe leads to inflation. The caveat here is higher inflation may begin taking hold later rather than sooner.

By my calculations gold should be priced at about $2,128 per ounce, rather than $1,231 as I write this note. I base this assessment on the $877 reached at its 1980 peak and the level of inflation in the intervening years. Applying a simple 3% inflation rate over the last 30 years to the $877 brings us to the $2,128 price mentioned above. (My 1980 gold price was derived from the book ‘Crash Proof 2.0’ by Peter Schiff, a read I highly recommend). (Peter Schiff is one of the few who called the financial meltdown long before it happened).

Of course there are no guarantees gold will meet my expectations. It seems we have much to do in terms of working off the excesses of the boom years. Asset deflation still stalks the land and where it may end no one can know.

But if governments across the world continue to fight this recession with more and more paper money then I think we’ll eventually revisit the high inflation of the 1970’s. So let’s get prepared for that very real possibility.

For the Love of Aussie

2010-06-15T13:35:00.000-04:00

Throw some more shrimp on the barbie mate and break out the Matilda, we’re going to Australia! Well not literally, but certainly within our investment program.

Just last week I acquired an Australian stock ETF for our accounts and today I went Down Under again, buying the Australian dollar.

Note: These purchases were for Moderate and Aggressive Risk accounts only.

It’s not that I’ve suddenly become enamored with all things Australian, although one could do worse. No, it’s due to my technical charts indicating that part of the world has become a compelling buy, and the fundamentals are in agreement.

By fundamentals I mean the Australian economy may be farther along in recovery mode than Europe and our own. Australia is also blessed with abundant natural resources, making the Aussies self sufficient in so many ways. See more by clicking link below.

My emphasis in bold throughout the article.

http://science.jrank.org/pages/663/Australia-Natural-resources.html

Excerpts from above link: It is estimated that Australia has 24 billion tons (22 billion tonnes) of coal reserves, over one-quarter of which (7 billion tons/6 billion ton) is anthracite or black coal deposited in Permian sediments in the Sydney Basin of New South Wales and in Queensland. Brown coal suitable for electricity production in found in Victoria. Australia meets its domestic coal consumption needs with its own reserves and exports the surplus.

Natural gas fields are liberally distributed throughout the country and now supply most of Australia's domestic needs. There are commercial gas fields in every state and pipelines connecting those fields to major cities. Within three years, Australian natural gas production leapt almost 14-fold from 8.6 billion cu ft (258 million cu m) in 1969, the first year of production, to 110 billion cu ft (3.3 billion cu m) in 1972. All in all, Australia has trillions of tons of estimated natural gas reserves trapped in sedimentary strata distributed around the continent.

Australia

supplies much of its oil consumption needs domestically.

Australia has rich deposits of uranium ore, which is refined for use for fuel for the nuclear power industry.

Australia has billions of tons of iron ore reserves, exporting magnetite iron from mines in Tasmania to Japan while still extracting ore from older mines…………

The Western Australian shield is rich in nickel deposits that were first discovered at Kambalda near Kalgoorlie in south Western Australia in 1964.

Australia is also extremely rich in zinc reserves.The Northern Territory also has lead and zinc mines as well as vast reserves of bauxite (aluminum ore), namely at Weipa on the Gulf of Carpenteria and at Gove in Arnhem Land.

Gold production in Australia, which was substantial earlier in the century, has declined from a peak production of four million fine ounces in 1904 to several hundred thousand fine ounces. (End of article)

All in all a natural resources powerhouse, a highly educated population, and a free enterprise system designed to unlock tremendous opportunity. And we now own a piece of it.

Our monthly newsletter goes into greater detail about what we’re buying and selling and why so by all means click this link http://allweatherinvestors.com/ to subscribe. It’s Free, and produced monthly.

Selective Buying

2010-06-13T18:13:00.000-04:00

With something less than complete confidence I’ve proceeded with a mini buying spree in recent days. For aggressive accounts I bought positions in exchange traded funds including Australia, Asia and leveraged oil.

For moderate risk accounts I bought oil exploration, no additional buying for conservative risk, at least not yet. Note all purchases are targeted with a rifle shot approach. I’m not yet to the place where I can buy diversified funds with confidence.

The buying was prompted by a number of technical indicators I track. OBV, Money Flow, MACD and the 50 day EMA all figured into implementing the buying decisions mentioned above. (See end of article for description of each technical indicator)

The reason for my lukewarm confidence is of course the many problems we’ve been living with for some time now. From serious financial dislocations across the globe to the ongoing war on terrorism, saber rattling in the Koreas, the list could fill a book. Suffice to say we’re far from resolving these weighty issues.

But markets often disregard risk and climb that clichéd “wall of worry.” Case in point is the recent 13 month run from March 2009 to late April 2010. That took the S&P 500 from 676 to a high of 1219, a gain of 80%! And we were living with many of those very same problems throughout that period.

As always I will adhere closely to my stop loss rules. Any holding that breaches its trailing stop loss price will become a likely sale candidate. I have not turned my client accounts into trading vehicles but we must protect ourselves at all times.

Caution: This article in no way represents recommendations or investment advice. This is informational only.

From Investopedia: http://www.investopedia.com/dictionary/

OBV (On Balance Volume): A method used in technical analysis to detect momentum, the calculation of which relates volume to price change. OBV provides a running total of volume and shows whether this volume is flowing in or out of a given security

Money Flow: Calculated by averaging the high, low, and closing prices, and multiplying by the daily volume. Comparing that result with the number for the previous day tells you whether money flow was positive or negative for the current day.

MACD (Moving Average Convergence Divergence): A trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA. A nine-day EMA of the MACD, called the "signal line", is then plotted on top of the MACD, functioning as a trigger for buy and sell signals.

EMA (Exponential Moving Average): A type of moving average that is similar to a simple moving average, except that more weight is given to the latest data. The exponential moving average is also known as "exponentially weighted moving average".

Cautious Buy Ahead?

2010-06-11T09:21:00.002-04:00

The markets rocketed off the bottom yesterday, with indices across the world jumping to the same rock and roll beat. Our domestic markets were led by the S&P 500, NASDAQ Composite and Dow Industrials, up 2.95%, 2.77% and 2.76% respectively.

World markets were led by Spain, up 3.72%, Italy +2.53%, France +2.03% and Japan up 1.92%. Just about every market in the world was reveling in black ink for a change.

Is this a harbinger of more giddiness to come? Can we throw caution to the winds and barrel in with guns blazing?

I say, not so fast. Very few technical indicators are flashing green, and the financial problems plaguing the world have not been papered over entirely, pun intended.

Having thrown out my usual cautionary note, I now proceed to a market flashing buy signals. I refer to the oil market, the very stuff fouling the Gulf of Mexico and much of the Gulf region.

If the markets hold steady today I will likely buy a 10% position in one of the oil ETF’s, of which there are many. Oil Service Holders (OIH), iShares Oil Equipment (IEZ), SPDR S&P Oil & Gas (XES), iShares DJ Oil & Gas (IEO), Energy Select Sector (XLE) and many others. (Symbols in parentheses)

Due to market volatility I will hew to tighter stops, for I have come to believe these lurches to and fro will be with us for a long time. The days of ‘buy and hold’, or as some put it, ‘buy and hope’, are in the rear view mirror, at least for as far as the eye can see.

When I buy I’ll be looking for shorter term market runs, then selling before we give back our gains. I don’t have to remind you what it’s been like the past few years but, well I guess I will remind you after all.

We all remember the disaster of 2008, the year the markets cratered by half, in some cases even more. But I don’t have to go back that far. The S&P 500 was up about 8% from January 1 to April 26th this year. After the recent correction it was down 4.49% for the year before yesterday's monster rally. ‘Nuf said.

So, today an oil buy, unless we get a total reversal, again.

The Answer

2010-06-05T15:52:00.000-04:00

Question asked and answered. My Friday morning blog post asked the question as to whether we were on the verge of another short term market run to the upside or setting up for another free fall. The events of Friday the 4th answered that question in spades. (Click chart to enlarge)

All the major stock indices were down sharply Friday, led by the Russell 2000, down 5%, to the Dow, S&P 500 and NASDAQ, all off 3% or more.

The foreign markets were generally whacked about as hard. The German Dax was off nearly 2%, UK FTSE down 1.6%, French CAC down 2.8%, Brazil Bovespa down 2%, the list goes on and on. The only markets holding relatively steady were in Asia, most down just fractionally. That may change Monday though, partly in sympathy with the other markets worldwide.

About the only respites were U.S. treasury bonds, the dollar and gold, all up strongly due to billions of dollars, yen and euros seeking safe harbors.

The big question now of course is, where do we go from here? There is no denying we are in a place of high risk at this time in history. This makes investing in any market fraught with a higher level of uncertainty than normal, whatever normal is.

For a more definitive answer I always turn to the charts. I’m referring to the most clear cut roadmap I’ve been able to find in my 30 years of navigating the investment markets. That roadmap is the S&P 500 10 month moving average.

Note the orange (5 month) exponential moving average (EMA) line has already turned down. The more important long term indicator, the blue line, (10 month) is on the verge of turning down. My studies of long term market movements dating back to the early 1970’s indicate a very high incidence of a long term bear market when the 10 month line turns down decisively.

To protect my clients from shorter term whipsaws I use an additional strategy. I wait until the blue line in the chart (10 month moving average) turns down by 1% from its trailing peak level. History has signaled a serious bear market about to unfold when this occurs. This signal has not been infallible, but it does have a high degree of accuracy.

We are very close to that level now. If it comes to pass I will take even more steps to protect our account values. I’ve already repositioned to a more defensive posture. Our portfolios currently hold a high percentage of treasury bonds and other defensive securities. If the breakdown in world markets continues I will likely buy more treasuries and potentially that age old safe harbor investment, gold.

As the great Chinese philosopher reputedly said, loosely translated, “may you live in interesting times.” To that I must add, we certainly do.

Another Run?

2010-06-04T08:34:00.000-04:00

The time is at hand. A time to determine whether the markets are setting up for another move to the upside, or the negatives across the world are setting up for another free fall.

You know the story by now. Extreme debt across the spectrum, ranging from governments throughout the world including but not limited to

Spain

Greece

Portugal

and others. In addition hundreds of thousands of homeowners here and abroad are mired in debt and clinging to homes seriously underwater. And of course our fragile economy, still not producing the level of job growth to inspire confidence.

The story continues with saber rattling in the

Koreas

, contentious relations between

Israel

and its Arab neighbors, and the continued threat of terrorism in many corners of the world.

In spite of all that my closely tracked indicators are on the verge of signaling a buying opportunity. The major indices including the Dow Industrials, S&P 500, NASDAQ and others may have bottomed May 26^th with the Dow at 9974, the S&P 500 at 1067, and the NASDAQ at 2195. Those same averages have moved sporadically higher, closing yesterday at 2303 on the NASDAQ, 1102 on the S&P 500, and 10255 on the Dow.

We have a substantial cash position due to being stopped out of many of our positions in April and May. If the technical indicators signal a definitive buy I will use some of that cash to buy exchange traded funds, probably beginning with a technology fund and then on to more diversified growth positions.

This buying may take place today if our bell weather technical indicators continue to flash green. Because the markets remain very fragile, susceptible to big moves in either direction, I will adhere closely to my stop loss price points.

Volatility may be the order of the day for as far as the eye can see so long term buy and hold may have to wait for another time and place.

Fait Accompli

2010-05-30T11:34:00.001-04:00

The S&P 500 broke through that 1100 level I talked about in a recent post, closing at 1089 Friday. I sold nearly all stock funds, including mutual funds and exchange traded funds. (ETF’s)

Interestingly enough it wasn’t the decline through the S&P 1100 level that triggered the sales but simply due to each fund breaching their stop loss prices.

We’re now positioned as follows. For Conservative investors we’re 40% cash, 50% bonds, and a 10% position in UUP, a long dollar ETF.

For Moderate risk investors we’re 40% cash, 40% bonds, 10% UUP, and 10% in an Asian stock mutual fund. (The Asian fund held on and did not reach its stop loss price).

For Aggressive risk investors (yours truly) it's 100% cash. This is a trading account so movement between being fully invested long or short, or entirely in cash, or some combination, can take place very quickly.

The next few days should tell us a great deal about the longer term strength, or weakness, of the world’s economies and stock markets. Important news is on the docket in upcoming days, including more Europe, oil spill progress or lack of, corporate earnings reports, and the unemployment report. The unemployment report is due Friday.

I’m poised to move in whatever direction the markets dictate. If the markets resume their upward climb I’ll quickly buy the type of ETF’s that will participate.

If the markets head to lower levels I’m just as ready to become more defensive. I will, as always, allow the market’s direction to guide me.

Danger Zone!

2010-05-21T11:54:00.000-04:00

As I write this, 11:40 AM, the market is making a comeback from the massive losses of yesterday. I use the term danger zone in the title because we may be at a tipping point in the stock markets worldwide.

Important technical indicators are signaling the possibility of entering long term Bear Market territory.

One of the most highly valued indicators for me is the 10 month simple moving average (SMA). It’s the orange line in the chart above. It has a history of correctly signaling important turning points in market direction, i.e. both bull and bear markets. (Click chart above to enlarge)

The moving average line has been on the upturn since early 2009, but now has begun to flatten with the potential to turn down. This is an ominous sign.

Note the orange line in late 2000, early 2003, late 2007, and early 2009. Each time the moving average line began to change direction, and each time that led to major moves in the stock market.

If the moving average line penetrates the 1,100 level on the S&P 500 that’s an almost certain signal for me and my clients to exit the stock market. (Note: That’s not the S&P price itself, but the moving average line).

We’ve already moved below my sell stop price on one of our stock funds, and we’re close on the remaining two. It will not take much downside action for me to sell those funds and move to safe harbors.

So, we remain vigilant and will monitor our long term signals. The next few days should tell us what we need to know and help us make the decision. Do we exit the markets entirely, or is this just a short term correction, albeit a violent one? Stay tuned for the answer.

2010-05-17T14:38:00.000-04:00

Here’s a recent article that troubles me a great deal. It concerns so called high frequency traders (HFT’s). (Now there’s a new term for the investment world). Below is the shorthand version, click link for the article.

http://www.google.com/hostednews/ap/article/ALeqM5grrw9sO-9sG674656vk1cV1SWwD9FNCOUG0

From the article:Using super-fast computers, high-frequency traders in effect bend down to pick up pennies lying about in the stock market — then do it again, sometimes thousands of times a second.

But those pennies can add up to a lot of money, enough to draw the attention of Goldman Sachs Group Inc., the giant Chicago hedge fund Citadel Investment and other big financial firms. In recent years they've paid hundreds of millions of dollars for stakes in high-frequency trading companies.

Me: (Hmm, Goldman Sachs, now where have we heard that name before?

These quick-buck firms barely existed a few years ago but now account for two-thirds of all U.S. stock trading. (My emphasis in bold).

High-frequency trading firms, which number over 100, use computers programmed with complex mathematical formulas to comb markets for securities priced too high or too low because traders haven't had to time to react to the latest data. The computers then buy or sell in a split second, locking in a profit.

So is that good or bad for the market?

If you listen to HFTs’ all their fast trading benefits big and small investors alike. More trading means more bids and asks for shares, and that cuts the time needed to find someone willing to buy what you're selling or vice versa. Costs also fall. With more bids and asks, the difference between the price you seek and the price offered (what traders call the "spread") will likely narrow. You get to keep more of your money.

Critics of high-frequency trading say all this talk about narrowing spreads for ordinary investors distracts from a key problem: Split-second trading without human supervision is a recipe for disaster.

My Take? I come down on the side of the critics. The stock market has become nothing more than a giant casino in recent years, particularly for ‘small’ investors. (Small defined as any individual whose net worth and income cannot withstand the tremendous risks in today’s markets).

My evidence? The tech crash of 2000 – 2002, the near global disaster of 2008, the 1,000 Dow freefall a few days ago. Unfortunately I believe there’s much more of this on the horizon.

What to do? ‘Small’ investors must develop an investment program designed to withstand the future shocks yet to come, or retain the services of a professional with such a program in place.

In addition every ‘small’ investor should have two portfolios. One composed of disaster ‘insurance’, meaning investment/savings vehicles with little or no exposure to market volatility.

The second portfolio should be composed of market risk investments with the potential of keeping pace with inflation, but with safety measures and ‘exit strategies’ in place. Safety measures including use of stop loss trigger points, investments with minimal correlation to each other, and other measures to protect us from so called ‘Black Swan’ events.

Reprieve?

2010-05-12T17:17:00.001-04:00

Turns out there's been market recovery so I didn't sell Fairholme after all. You may recall my comments last post about some of our funds hitting their stop loss prices. This prompted me to sell European bond funds and technology but hold everything else.

The markets came roaring back this week so we were given a second chance so to speak. Fairholme has moved well above its’ stop loss price point so it remains in our portfolios.

The question now is, what's next? My answer, I don't know. What I do know is there is a world of trouble out there so we must remain cautious.

These macro problems are driving a flight to quality driven by fear and worry. Proof of that lies in the worldwide move to U.S. treasury securities and gold.

Speaking of gold, it's now hit a record high. Probably not the best time to buy but I'll be looking for lower priced entry points over the next few months. We've owned gold over the past year but its’ volatility caused us to sell because it hit its’ stop loss price.

We remain heavily invested in high quality, intermediate duration bonds, as well as positions in high yield corporates.

We continue to hold our 'All Weather' equity stock funds, including Fairholme, First Eagle and Mathews.

It looks like we’re in a holding period until the markets make a distinct move in one direction or another. Either way we’re positioned to follow the trend, once it is revealed.

Danger Zone!

2010-05-08T15:00:00.004-04:00

There's an old saying in the markets known as 'go away in May, come back another day', or something to that effect. It's due to the historical performance of the markets generally being much more positive in the first calendar quarter, tailing off through Summer, then picking up steam the last quarter.

Well May came early this year with the markets going into a tailspin the last few days. This correction has been so violent that virtually all the year to date gains have been given back. (Fortunately we're still well in the black and I aim to do all I can to keep us there).

January 1 through April 30 the Dow Industrials, S&P 500 and NASDAQ were up 6.42%, 7.05%, and 8.46% respectively. As of Friday's close they were +0.45%, +0.26% and -0.15%. A violent and savage reaction primarily due to the news from Europe.

For perspective on that news click the link to Morningstar and an interview with PIMCO's Mohamed El-Eriana. (PIMCO is one of the leading asset managers in the world.

http://www.morningstar.com/Cover/videoCenter.aspx?id=336654

This correction has resulted in our trailing stop loss price points being triggered Thursday and Friday. I have since sold two funds heavily weighted in European bonds.

Fairholme's stop price was also breached so I will likely sell it Monday, depending on market action. If there is recovery I will hold off but if it's more of the same next week I will cut it loose.

We are living in dangerous times, both to our financial futures and personal safety. I of course have no idea what the future may bring but I can control how I react to events.

If we are in the beginning stages of a more serious correction I will not hesitate to use my favored market indicators and stop loss trigger points to exit the market entirely.

There is a tremendous amount of risk in the markets at this time, but where there is risk there is often opportunity.

So long until next time. Feel free to post comments or questions and I will respond ASAP.

The Future is Here

2010-05-06T12:24:00.001-04:00

I have seen the future of portfolio management and its name is Foliofn Investments. Foliofn is a relatively new brokerage firm started in 1999 by a former executive of the Securities Exchange Commission.
Take a look at their 'mission statement' below then click the link for more.

https://www.folioinstitutional.com/about-institutional.jsp

The company was founded in 1999 by Steven Wallman, a former commissioner of the U.S. Securities and Exchange Commission widely recognized for advocacy on behalf of investors. We are based in the Washington, D.C. suburb of McLean, in the heart of the Northern Virginia high-technology corridor.

Mr. Wallman gained a unique perspective on Wall Street during his years as a Commissioner of the U.S. Securities and Exchange Commission. He saw first-hand how the needs of many investors were not being fully met by existing financial institutions and existing financial investment vehicles.

Folio Institutional was founded, in part, to provide advisors and other professionals the tools they need to deliver better solutions to their clients:

With Folios, investors of all sizes and investment styles can enjoy the advantages of a flexible and diversified portfolio.
Folios help reduce the drain on your earnings from fees, trading commissions, and capital gains taxes.
Folios, in contrast to mutual funds, provide advisors and their clients transparency and control over the securities their money is invested in.

In short, Folio Institutional was founded to provide advisors and other professionals a platform for them to deliver a better way to invest.

I have for years used mutual funds to build and manage my client portfolios, and in more recent years I've added exchange traded funds. (EFT's)

As attractive as I find mutual funds they have a number of negatives, the biggest being high internal operating expenses and a mandate to 'pass through' capital gains every year. This occurs even if the fund owner made no sales.

At Foliofn we can essentially build our own portfolio and have complete transparency at all times. We can make changes at any time, and if the buys or sells take place during what they call 'window trading', (specific times during the day) no commissions or fees will be charged.

Making our own changes of course gives us much greater control over tax liabilities. No more big capital gain tax liabilities by pass through dividends in December. To add insult to injury some of the big tax liabilities from mutual funds arrived in losing years like 2008!

Foliofn's annual custodial fee for all this is only 0.25% per year, a fraction of what most mutual funds charge and even less than many ETF's.

I'm in the process of designing three portfolios at the firm to use for all clients who would join me there. The three designs are based on risk level, income needs etc. Each portfolio will hold primarily stocks and ETF's.

This is a concept whose time has come and I'm getting on board.

Is China Pointing the Way?

2010-04-30T14:54:00.016-04:00

Here's a recent segment from the Mad Hedge Fund Trader. It's his take on the direction of two markets. To the right is the Chinese market, represented by the Shanghai index. To the left is our own domestic market as represented by the S&P 500. (Click charts to enlarge)

" How Can the US Go Up and China Go Down? There is something that is not right with these pictures. Investor sentiment is now 54% bullish, the highest since December, 2007. In the meantime, the Chinese stock market is rolling over like the Bismark, with the Shanghai Index’s ($SSEC) down a worrisome 10.8% YTD. You can blame the Chinese central bank’s efforts to cool down real estate speculation, which is throwing cold water on the rest of the economy. Many of the profits that have driven US stocks to bullish extremes are contingent on selling a huge range of capital goods and commodities to China and the rest of the emerging markets, hence the disparity. This divergence can’t last, and my bet is that it breaks by American indexes joining China in a downtrend. This is just a humble observer’s opinion".

I am also of the view a correction is overdue, even imminent. The domestic markets have moved ever upward with nary a hiccup. The last correction of any significance was mid January to early February, down about 8% or so through that period as measured by the S&P 500. The latest rally has taken the market up about 13% since that time.

As of this writing the S&P 500 is up about 8% year to date, and a monster 75% since the lows of March 9th 2009! It's been one of the most amazing turnarounds in my 30 year career.

I sold SPY in mid March and have kept those funds in cash reserve since then. The plan is to redeploy into areas of the markets doing well once a buying opportunity presents itself.

Even though I'm expecting a correction soon I continue to believe we're in the early stages of a bull market, as illustrated by my favored indicators. I'll use any corrections as buying opportunities.

Meanwhile we'll keep a close eye on unfolding events, stop loss triggers firmly in mind. After all, it doesn't matter what I believe, what matters is the will of the market.

As the old saying goes, all egos must be checked at the door. Feelings and beliefs must take into account the realities displayed to us every day.

The Goldman Sachs Cabal

2010-04-17T11:05:00.009-04:00

The big news to hit the investment world is the civil suit filed by the SEC against the mega investment banking firm Goldman Sachs. Click the link to read more.

Goldman Sachs Fraud Charges

You've probably heard and seen reams of reporting about it so I'll just provide an overview.

The suit alleges traders within Goldman Sachs conspired with a big hedge fund, the Paulson Company, to bet against a specific investment vehicle while peddling the same investment to other investors, sans full disclosure.

The full disclosure would have informed the unsuspecting investors that the Paulson Company was allowed to select the subprime mortgages included in the investment, mortgages that were almost certainly doomed to fail.

A failure of the mortgages would cost the unsuspecting investors billions, while at the same time greatly enrich the hedge fund. And of course that's exactly what happened.

Reports are Goldman made 15 million on the deal, the Paulson hedge fund made multi millions, while the losers lost more than 1 billion.

My belief is not much will come of this turn of events. Worst case for Goldman is a likely settlement without admitting wrongdoing, a modest fine, and then back to business as usual.

The bigger question is what effect this, and other events like this, will have on investors confidence, and future market behavior?

Short term we may experience turmoil, further market decline, and maybe even a serious attempt by Congress to rein in the 'gunslinger' mentality on Wall St.

Another question. How did the Goldman news affect our clients portfolios? I took a look and here are the results.

All our bond mutual funds were up fractionally save one, and it was down less than 1/2 %. These same funds are up for the year anywhere from 4% to 8% in total return and belting out dividends ranging from 4% to 8.5% annualized.

Equity funds First Eagle and Mathews were down just 1% or so, our tech fund was down 1.21%, while Fairholme did get whacked to the tune of a negative 1.61%. All are still up for the year 5% or more to as much as 15% for Fairholme.

The net result was our portfolios were down just fractionally for the day, but still up strongly for the year.

Remember we have many protective measures in place. Each of our holdings has a safety stop loss, generally 5% for quality bonds, 8% for diversified stock funds, and 10% for the more volatile funds like technology.

What that means is I simply put a price under the trailing high prices. If any of the funds fall by those percentages from their highs they are candidates for immediate sale.

This strategy helps protect us from severe losses and enables us to lock in profits before they disappear. It also protects us from from being victims in any long term and severe market declines.

I also maintain a stop loss on the overall market direction. In other words when the major market indicators are clearly flashing 'Bear Market' we sell. We don't hang around wishing and hoping for the markets to come back and make us whole again.

This strategy saved us from the market collapse in 2008 and I have every confidence it will again.

Feel free to post comments and/or suggestions. They are noted and appreciated.

Rape and Pillage

2010-03-26T12:40:00.007-04:00

I read an interesting article recently about Michael Lewis' new book, "The Big Short." (Click link below)

http://www.marketwatch.com/story/ten-things-we-can-learn-from-michael-lewis-2010-03-23

Mr. Lewis is getting a lot of buzz these days about his book, and has been giving numerous interviews. I've not yet read it but I did see his "60 Minutes" interview. Everything he's saying just confirms my long held view.

He talks about corruption and incompetence at the highest levels of business and government, and the dire consequences we've endured as a direct result.

I believe we've become a nation consumed by greed. It's everywhere, from the highest offices on Wall Street, to Washington D.C, and all points between.

Greed and incompetence have driven many large firms to ruin, from Enron and Global Crossing to, more recently, Lehman Brothers and Bear Stearns.

Remember the movie 'Wall Street" from the 1980's, with the famous, or should I say infamous line uttered by Gordon Gecko? He said, "greed is good". I'm afraid many took that line and philosophy to heart.

I believe the major objective of many is to rape and pillage their companies, their customers, and any other marks that may cross their paths. How else to explain the out of whack system of compensation that lavishly rewards people who run their companies into the ground?

Outlandish bonuses, expensive junkets, golden parachutes, the list goes on and on. Not to mention companies that compensate their upper level employees two hundred, three hundred times or more what they pay the rest of their workforce.

And there seems to be no end in sight for this madness. Too many individuals continue to suck the life out of their own companies. More time is spent developing creative ways to take advantage of the unwary than providing products and services at fair prices.

These same people ran to the taxpayer to bail them out, and now that they're out of the woods it's back to business as usual.

So beware. Protect yourself. Do business only with reputable companies, do your homework, verify, and verify again.

Watch your investments closely, only invest in those you understand. Never blindly accept the so called experts advice or recommendations. Have an exit strategy in place. Get out of any investment or financial entanglement before serious damage is done.

Rally Looking Tired

2010-03-11T08:39:00.003-05:00

This newest rally is indeed looking a bit worn out. The chart below depicts the most recent runup from mid January with lower and lower volume. (Click link for chart)

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=spy&time=&freq=

The chart is the exchange traded fund SPY, which I use as a proxy for the S&P 500. SPY is the fund I purchased on March 9,2009, my initial foray into the stock market after being on the sidelines in money market and treasury funds for months. Turns out that was the market bottom and of course the market went on a rampage, gaining 26% for the year. (Sometimes being lucky tops being good)

I'll be switching gears in the next few weeks. The plan is to sell SPY to capture the long term gains and redeploy the money into what I believe will be more fruitful areas. The most likely candidates will be small company and emerging market funds.

To buy the new funds I'll probably await another of what I refer to as 'mini' corrections, corrections that carry the major indices down 5% to 7% or so. They come along often, three or four taking place in the trailing twelve months.

We continue to hold high yielding bond funds, both domestic and foreign. Our core equity holdings and technology fund are performing well.

I continue to believe we're in the early stages of a new bull market and my expectations for a slow economic recovery remain unshaken. Yes we continue to face numerous challenges but in time they will be overcome.

Meanwhile we'll continue to look for opportunities, always mindful things can change, and always adhering to our philosophy of, to paraphrase, "first do the client no harm."

Feel free to comment or ask questions about this or any other column. Past suggestions have been valuable and have led to my implementing many positive changes. I thank all who have and will participate in these discussions.

The False Premise of Diversification

2010-03-07T12:25:00.000-05:00

Just diversify across asset classes and you'll be protected from all potential harm. Or so the story goes from Wall Street, and the many Wall Street minions across the brokerage world.

Just buy a smattering of stocks and/or mutual funds, hold for the long term, and all will be right with the world, and your financial security.

Everywhere I turn it seems the same old story continues. Diversification, Buy and Hold, Modern Portfolio Theory, the beat goes on and on.

Have they all forgotten the two devastating bear markets of the last 10 years? Are they not aware of the hopes and dreams that have been dashed, retirements postponed, net worths crushed?

Or do they just move on, glossing over the serious shortcomings of the aforementioned Wall Street 'wisdom'?

I have moved in the opposite direction in recent years. I no longer build and manage portfolios containing 10 to 12 mutual funds, or 18 or more stocks. Each client portfolio now owns a maximum seven individual funds, stocks, bonds, or combination of each. We selectively buy assets as we always have. We just buy fewer of them.

The management philosophy is to buy fewer eggs for our baskets, but watch those eggs very closely, and place a safety net under them. The safety net is the 'stop loss' measures placed under each security we own, as well as the overall market(s).

I believe asset protection is much more important than diversification. Asset protection means we have a series of rules to protect us from market meltdowns, regardless of the market involved. Whether precious metals, real estate, commodities, bonds or kumquats, we have an exit strategy for each.

The exit strategy for individual securities ranges from a 5% decline from trailing highs for high quality bonds to 8% for broad based stock funds, to as much as 12% for more volatile stocks and stock funds. If the securities we own pierce those levels they become candidates for selling.

We also monitor specific indices to track the various markets, always measuring whether they're in bull or bear market territory. We rely on the usual technical indicators including Moving Averages, but also incorporate On Balance Values, Money Flow, and others.

It's true I've had 'safety' strategies in place for a number of years and they have protected us, to a degree. These strategies and indicators helped save us from the horrendous declines in 2008, and even the bear market that persisted from 2000 - 2002.

Today's strategies have been upgraded from those in place in past years. They are more formalized, relied upon more heavily, and implemented more readily.

Remember, no one can afford to lose 20%, 30% or more of their portfolio, no matter the age of the individual. This is particularly true of anyone nearing retirement age.

Always, always have an 'Exit Strategy'.

Climbing That Wall of Worry

2010-02-26T17:07:00.001-05:00

Home sales down, consumer sentiment down, banks and insurance companies struggling, unemployment stuck at high levels, stock market, up. Up??? Yes indeed, the stock market continues to climb that proverbial wall of worry. How can this be?

The answer seems to be because the stock market, as always, is a forward looking mechanism. It is foretelling an economic recovery, in spite of the doom and gloom enveloping us at the moment.

The rear view look tells us the 'Bear' market lasted from October 2007 to March 2009, a total of approx 17 months, which is fairly typical of bear markets. The forward looking view tells us the worst is past, and this nascent 'Bull' should be with us for many months to come.

This market continues to confound the so called experts. Most are continuing to disbelieve, and many are even calling for a new decline taking us to lower lows. It has particularly buffaloed the investing public because all reports indicate the so called small investor has remained on the sidelines throughout this impressive rally, now nearing a full years duration.

Are the 'experts' right? Is the small investor making the right call, remaining on the sidelines?

My belief is, the market is always right. And right now it's telling us we need to be in it to win it. So until our favored indicators signal a new bear market we'll remain fully committed.

The Bull Survives

2010-02-14T12:09:00.011-05:00

This bull market has hit a roadblock but I believe remains intact. I say this with caution as we're in a relatively mild correction since January 19th. The S&P 500 is down 6.5% since then, the NASDAQ off 6.2%, the small company Russell 2000 a negative 6%.

None of our holdings have been stopped out to this point. Our bond funds are down from 1.8% to 3.4% from their prior highs while our equity funds are down 4.8% to 6%. Significant but not yet approaching their individual stop loss sell points.

You may remember our stop loss triggers are based on percentage declines from each funds' trailing high price. The price triggers are 5% on most bond funds, 8% on diversified equity funds, and 12% on the more volatile funds like sectors, commodities, foreign etc.. The stop loss trigger price does not mean we automatically sell the fund in question but does mean I monitor it more closely. If the market continues to move against us I will sell.

This is a slight adjustment to our past strategy of selling immediately and without question. This revision is meant to avoid selling a quality fund only to see the market soon reverse and carry our former holding to new highs. This has happened a few times in recent months.

Nothing is perfect is this business and I'm always open to making adjustments in order to improve results.

We're not quite fully invested in our Moderate Risk accounts so I may use this 'mini' correction to purchase two funds soon, technology and emerging market ETF's.

The many trend indicators I track continue to point to an ongoing bull market. As long as that is the case I will remain fully invested. As always I remain vigilant and will not hesitate to take action should the markets turn against us.

Danger Zone?

2010-01-31T10:23:00.008-05:00

It seems many people are extremely agitated over the recent and ongoing market correction. They’re debating the merits of selling everything and getting out of the market.

I believe the concern is overblown. This downturn is very likely another ‘mini’ correction taking place, like so many before. Granted it’s a bit steeper than recent ones, but still within the realm of normal in a bull market.

The S&P 500 is down 6.9% since its recent high, Dow Industrials off 6.50 %, and NASDAQ a negative 7.77%.

The value in maintaining an emotional distance from market chatter cannot be overstated. It’s far too easy to get caught up in the TV talking heads, the media headlines, and the opinions of others around you.

The better choice is to develop a purely mechanical system of monitoring your investment portfolio, and each holding within the portfolio.

This is the philosophy that allowed us to recognize the disaster unfolding in 2008 and systematically sell our investments before it was too late. Using this mechanical ‘decision making’ system protected us from a year we’ll not soon forget.

The same system is now flashing yellow caution flags, but has not signaled anything near bear market territory. An important part of the overall system is to adhere to the ‘stop loss’ point on each individual holding, as well as a stop loss on the total market.

Our stop loss point was breached recently in a narrow segment of the market. It resulted in selling our gold fund for a small gain. The price of gold has been breaking down since December, off nearly 12% since that time.

I bought a value oriented stock fund at about the same time to take advantage of lower prices provided by this correction. If this market correction is indeed a speed bump on the way to higher highs then this will be remembered as a buying opportunity.

If it turns out to be a revisit to bear territory then our rules of engagement will allow us to part company and sell before serious harm is done.

Remember, regardless of what you, I, or the so called experts may think or say, whether a bull or a bear, in freefall or soaring, the stock market is always right.

It's the Economy Stupid!

2010-01-21T21:55:00.005-05:00

Government needs to begin ratcheting back the various welfare and bail out programs, for they provide disincentives to people and companies alike.

Companies must begin rewarding employees on the production floor more in keeping with the true value they provide. When upper management reaps hundreds of times more reward than the people who provide the labor, well something is wrong with a system that encourages that behavior.

In the end it will be full employment that puts us back on course. Employment renews confidence, and with that confidence the ability to solve all challenges will return.

Follow the Money

2010-01-10T07:53:00.003-05:00

I keep hearing and reading about the so called 'smart money' driving this market. The 'smart money' meaning hedge funds, pension and endowment funds, banks and other institutions. There are even those who say the 'small investor,' meaning everyone else, is out of the stock market, never to return. (See link below for more on this)

http://www.thenewamerican.com/index.php/economy/commentary-mainmenu-43/2728-economy-far-from-being-out-of-the-woods

To the idea small investors will never return to the stock market, I say horsepuckey! (Horsepuckey meaning, well, no explanation needed on that one, is there?) The small investor will be back, and here's why. It's a matter of human nature, or behavioral science if you will.

So many people (small investors) have been so traumatized by the events of recent years that it will take more than a ten month stock market rally to bring them back.

Renewing one's confidence after the shattering events of two severe 'Bear' markets within 10 years, the malfeasance of once trusted institutions and professionals, the ongoing terror attacks and threats of more of the same, is a tall order. Those events have shaken the small investor to the core, understandably so.

On the other hand most if not all new 'Bull' markets in my 30 year professional memory have begun with the small investor on the sidelines. It generally takes time to renew confidence that this is indeed a bull market, and time to get on board before its too late.

I believe the same scenario will unfold yet again. Unless human nature has drastically somehow changed, which I find unlikely, even well nigh impossible.

So, every opportunity the market gives us to get invested should be taken. When the garden variety 'mini' corrections come along, use them as opportunities to buy. (Mini corrections defined as a 5% to 7% short term decline).

And our insurance policy? If this ten month market rally turns out to be the proverbial 'Bear Market Trap' we will use our stop loss indicators to get out. For more on exit strategies click below. Note specifically the explanation of the 200 day moving average.

http://www.mutualfundstrategy.com/articles/011909.html

An Exaggerated Death

2009-12-31T09:26:00.011-05:00

(Click chart to enlarge)

To put a twist on the famous Mark Twain quote, reports of the death of the dollar have been greatly exaggerated.

Numerous reports of the dollars demise over the last year or so would lead one to believe it would be banished to the hinterlands, never to be heard from again. The currency of choice and respect would become the Japanese yen, the Chinese yuan, or from the sounds of gnashing of teeth and wringing of hands, maybe even the euro!

It reminds me of the 1980’s when many so called experts were predicting Japan was on the cusp of taking over the world, economically speaking.

And how did that work out? Well, let’s see. The U.S. went on an unprecedented run of economic success through the 1990’s while Japan entered a period of no growth where it remains to this day.

So, what’s in store for us in the year ahead? No one can predict the future of course, and I’m not one to make predictions in the first place.

I do know this however. History is on the side of the markets doing well in 2010. I say that for a number of reasons. First, we appear to be emerging from our worldwide economic malaise. We’ve certainly left the raw emotion of fear behind.

Second, my research shows the stock market has rarely produced two or more consecutive calendar years of decline. In fact, it’s happened only four times over the last 83 years, dating back to 1926.

The most recent was 2000 – 2002. Before that 1973 – 1974, and of course the third and fourth were 1939 – 1941, and 1929 – 1932. I consider the latter two all part of the horrific singular event known as the Great Depression.

The markets have staged a mini breakout of sorts. The major domestic indices have broken through those double tops I spoke of in a previous post. Even the Russell 2000, a small company index, has broken through its October high and moved to the 633 level.

We are nearly fully invested at this time. Aggressive risk accounts are 100% equities, a mixture of stocks, equity mutual funds and etf’s. (exchange traded funds).

More conservative accounts hold a mix of domestic and foreign bond mutual funds, equity mutual funds, etf’s, and a 15% money market position.

Any correction of significance will allow us an opportunity to put our remaining cash to work, and the buying will likely be additional equity funds.

Overcoming a Range Bound Market

2009-12-14T09:04:00.007-05:00

With the S&P seemingly stuck at the 1100 level the past few weeks it’s time to consider the likelihood of a go ‘nowhere market,’ and strategies to overcome it. See the short ‘More Churn’ post by the Kirk Report by clicking the link below.

http://www.thekirkreport.com/2009/12/11/index.html

The first order of business in this type of market is patience. Range bound markets historically have taken lengthy periods of time to play out. Sometimes many weeks, even months before a discernible trend begins to take shape.

A range bound market lends itself to the stock picker. The broad market may vacillate to and fro but within this type of action there are usually stocks that will break out to the upside. Our challenge is to identify them early and take positions before they get away from us.

Another important strategy is sector rotation. Throughout this market run since March different sectors have charged to the fore, emerging markets and metals among the leaders. Gold, silver, platinum, copper and other metals have all had a spectacular run.

It may soon be time for other sectors to have their place in the sun. Keep an eye on health, natural gas, biotech, and telecommunications. They have not yet enjoyed a run to the top but could be poised to do so when the next leg of the bull market begins.

We remain heavily invested in high yielding bonds, domestic and foreign. Additional holdings include gold, both long and short, platinum, and diversified foreign stock funds including MACSX and SGENX. (We took an inverse gold position recently as a hedge. When the gold trend is clear we’ll sell one of the two holdings).

We hold only one domestic stock fund, exchange traded fund SPY. The reason is I’m finding more value and potential in foreign markets.

Any sector breakouts in the future will almost certainly find me taking rifle shot positions in those leading the way. Our trend tracking tools will help us identify them in the early stages of their upside move and we’ll probably use exchange traded funds as our vehicle of choice.

Dubai, The Shot Heard Round the World

2009-11-30T08:34:00.008-05:00

The real estate bust has spread to Dubai, the wealthy Arab emirate. It seems they’re seeking a delay of debt repayment of outstanding loans totaling in the neighborhood of $59 billion.

Dubai is the emirate that put up all those glitzy office buildings, man made islands shaped like nations, and even bought American signature properties including the MGM Grand Casino in Las Vegas.

The news created havoc all over the world. U.S. markets were hard hit Friday, with the Dow Industrials down 154 points, or 1.48%, the S&P 500 shed 1.72%, the NASDAQ off 1.73%, and the Russell 2000 was crushed by a full 2.53%.

Most of the foreign markets took the hit even harder. The Chinese markets represented by the Shanghai and Hong Kong exchanges were down 2.36% and 4.84% respectively, Japans’ Nikkei was off 3.22% and Seoul Korea was smacked to the tune of 4.69%.

One bright spot was the European markets with London, Paris and Frankfort markets posting positive gains for the day, which I find interesting. One would think those markets would be down because many of the Dubai loans are held by European banks.

In addition to the above I find it of some concern that three of our major market indicators, NASDAQ, S&P 500 and the Russell 2000 have all formed ‘double tops’ in the last few weeks. (See charts below). As mentioned in a previous post double tops have historically led to significant corrections.

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=%24compx&time=&freq=

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=%24inx&time=&freq=

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=rut&time=&freq=

I’ll be watching events closely over the next few days and if the decline continues I’m poised to take hedge positions, using inverse exchange traded funds (ETF’s). These are ETF’s that perform opposite their underlying indices. For example the inverse of the S&P 500 is symbol SH, and the double inverse is symbol SDS.

Beyond that I will, as always, adhere to all stop loss points in place. If any investments we hold close below their predetermined stop loss prices we will sell them, no questions asked.

Beware the Broker Selling Mutual Funds

2009-11-25T20:22:00.010-05:00

I just ran across an article on Money Central entitled “Brokers Favorites? Funds That Pay Them Well"

Click link below for the complete story.
http://articles.moneycentral.msn.com/Investing/MutualFunds/brokers-favorites-funds-that-pay-well.aspx

Just a few points from the article: Many advisers are essentially salespeople, preferring to sell funds that give them the biggest cut of the sales fees.

Richard Evans, a physicist turned finance professor at the University of Virginia, whose previous research showed how some mutual fund companies artificially sweeten their returns, has moved on to studying broker compensation. He and two colleagues looked at U.S. stock mutual funds over the decade ending with 2004 and found that, after controlling for things like return histories, brokers prefer to sell funds that give them the biggest cut.

Oh yes, as if we didn’t know, or at least suspect this was the case. I’ve been preaching this story for many years everywhere I go. From adult education classes at local colleges, to public seminars and workshops I’ve conducted over the years, I’ve often made the same point about brokers. The point being brokers are primarily salespeople. Their main objective is to make sales, and the brokerage firms they work for do everything possible to incentivize them to do just that.

Precious little thought or training is given to making their clients money and protecting them from serious market downturns.

Over the years I've occasionally attended classes and seminars conducted by brokers and heard them tout the advantages of Load funds vs. No-Load. Lower internal fees they said (which is patently untrue), plus you get the guidance of a professional.

Well, my research and experience tells me load funds are no better than No-Loads, and the loads clients pay do nothing more than give them a shoulder to vent on when the markets go bad. This is known in the business as ‘hand holding.’

The most important thing investors can do is develop a strategy that keeps them out of serious ‘Bear Markets,’ regardless of which mutual funds they may choose. I use a system called ‘trend tracking,’ which attempts to use market indicators as guides to determine when to be ‘in the market’, and when to be out.

Something as simple as moving averages have an excellent record of signaling the beginning and end of both ‘Bull’ and ‘Bear’ markets. Not infallible to be sure, but a very good batting average.

Click this link
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=%24inx&time=&freq=

to see a moving average over the last 20 years and you’ll see what I mean. It’s a picture of the 10 month exponential moving average (EMA) of the S&P 500 since 1989. Note the long term peaks and valleys clearly declaring, early on, the beginning of major ‘Bull’ and ‘Bear’ Markets. This is a tool anyone can use to guide them through the many years of volatility that lie ahead.

Click to see moving averages described by Investopedia.
http://www.investopedia.com/terms/s/sma.asp

Double Top

2009-11-15T06:20:00.008-05:00

A double top has formed in the Russell 2000 over the last two months. (Click chart to enlarge) Could this be the sign of a tired market, an imminent correction? Maybe. Double tops have historically led to market corrections.

We know the major indices are up 60% or more since early March, and that is certainly unsustainable.

We also know there are many dark clouds hanging overhead, from high unemployment, to high trade deficits, a dollar continually losing value, more residential foreclosures, troubles in commercial real estate. Did I leave anything out, is there more?

We are currently heavily invested in high yield domestic and emerging market bonds, foreign stock funds, and gold. We are very confident about our holdings, but certainly very cautious about what the near term economy has in store for us.

There are some important earnings reports due out this week that could give us a fix on what condition the economy is in. Lowes, General Motors, Target, Home Depot, BJ's Wholesale, Pet Smart, Dell, Sears, Gap, D.R. Horton, all will report earnings throughout the week.

If the markets hold at these levels then we should finish the year strongly. If they should falter we're prepared to take some hedge positions to protect our portfolio gains.

More on the outcome of all this coming soon.

The Lure of Gold

2009-11-05T08:04:00.011-05:00

Yes it has a certain luster doesn't it? Gold is back in the news in a big way! Headlines are plastered all over the place about India's recent blockbuster purchase of the yellow metal. My favorite 'mad man' posted an article (link below) about it today.

http://madhedgefundtrader.com/Today_s_Diary_Entry.php

It's not that I'm blessed with prescience but I also bought gold early this week. I used the recent mini correction to buy a gold mutual fund for Moderate Risk investor clients, and a gold ETF for Aggressive Risk accounts.

In addition I'll likely buy an Asian mutual fund and a World stock fund soon. They've been on my radar for some time now and this modest correction allows me to buy at a better price. And the decline of the dollar should make them even greater values in the future.

As stated here numerous times over the last few months I believe we are in the early stages of a new Bull Market. Governments all over the world are flooding the markets with cash so of course some of that cash is bidding up assets, i.e. stock markets.

What's that you say? You need additional evidence? How about the greatest investor of all time laying out 44 billion big ones to buy the 73% of Burlington Northern railroad he doesn't already own.

What do railroads do? Why they haul goods back and forth across the country. Raw goods, manufactured goods, and everything in between.

I add this all up and can come to but one conclusion. As shaky as everything seems at this moment, the economy is on the mend, and the bull has indeed come roaring out of the gate.

To take advantage I've been selling high quality bonds while continuing to hold high yield corporates and emerging market bonds. We also own an S&P 500 fund and as mentioned previously, new buys in gold and pending buys in Asia and World markets.

As long as my favored tracking indicators are pointing up, as they are now, I will be a buyer and owner.

Moonshot Interrupted

2009-11-01T07:46:00.009-05:00

Last post I talked about markets going to the moon being unlikely and sure enough, this moon shot has been interrupted. It was bound to happen, it's always just a question of when and how.

The markets had been trending down the last few weeks and then got hammered Friday with the Dow 30 whacked 2.5%, the S&P 500 off 2.8%, and the Nasdaq Composite shed 2.5%.

This so far brief correction has taken the above major indexes down 4.3%, 6.1%, and 6.6% respectively from their recent highs.

Does this mean the Bull Market is over, or does it have staying power? Is this the beginning of the end? The many pundits out there in 'Finance Land' are, as usual, split on these questions.

As you may know I avoid making predictions. Making predictions in this business can lead to financial ruin.

I instead rely on the market indicators I track, including moving averages, to guide me. These indicators do not predict, they simply tell us what is happening in the moment.

Because I use these indices as longer term indicators I don't engage in short term trading but instead try to identify trends with staying power. It's not a perfect system, but then what is?

If the indices are flashing green I am a buyer and owner. If flashing red I am a seller.

In short I'm a trend follower. It's a strategy designed to get us in the market only when a long term uptrend has been clearly established. Conversly it helps us get out of the market before a raging Bear Market damages our portfolios.

At the moment the indices are still flashing green, with nary a yellow caution in sight. But as always we remain vigilant, and will keep you posted on everything we do.

To the Moon Alice?

2009-10-26T09:59:00.010-04:00

Yes, like the old Jackie Gleason show this market threatens to go to the moon! Well, as we all know, Jackie never sent Alice to the moon, and this market won't get there either.

It's been nearly straight up since early March and at some point there will be a correction. In other words, a significant decline. Just when that may occur is anyone's guess, nor can we know in advance what event or events may occur to trigger it.

On another note I recently discovered an advisor who writes with insight and humor, a rare combination. See his "diary" at the link below.

He's the 'Mad Hedge Fund Trader.' (Hopefully the mad tag is meant as a complimentary nickname).

http://madhedgefundtrader.com/Today_s_Diary_Entry.php

Beyond his wit and insight however is another trait I value. He does not limit his investment expertise to the usual stocks and bonds but scours the investment world for investment opportunity wherever that may take him. He follows many markets worldwide ranging from stocks to commodities, and his strategies may encompass long and/or short positions.

To paraphrase another wise man, there's a bull market somewhere, or at least, investment opportunity awaits somewhere in the world.

We've made no changes to our positions since last post. Based on our favored indicators I believe we remain in a Bull Market. We continue to hold high dividend paying bonds, energy and S&P 500 funds.

But always, always looking for opportunities.

The Ever Ready Bunny!

2009-10-19T11:14:00.014-04:00

Like the 'Ever Ready Bunny' what we have here is a market that just won't quit! Great if you're fully invested, not so great if you're still sitting on the sidelines.

The two questions I'm hearing lately is whether now is a good time to get in the market if you're out, or getting out if you're in?

There is no easy answer, but I believe there is a formula. If you're in the stock market then a prudent course of action is to, if you haven't already, set trailing sell stops. A sell stop is simply setting a price at some arbitrary percentage under the price of the stock, mutual fund, etf, or whatever it is you own.

The trailing part means to continuously move the sell stop price up as the price of the security goes up. And you would do this for every security you own. If the price moves down and triggers your stop price, you should sell, period.

The value of this approach is the ability to capture the majority of gains on the upside while protecting against any damaging downside move.

It's true this strategy will not get you out at the precise top, but conversely you would never be exposed to the catastrophic losses experienced by so many investors over the last few years.

I use varying stop loss percentages depending on the volatility of the underlying security. For example I place a trailing 5% stop under high quality short to intermediate term bond funds, 8% under diversified moderately volatile stock funds, and as much as 12% under more volatile, specialized funds like sectors, metals, commodities etc.

One must have discipline and implement these strategies without fail. The moment you start second guessing, or giving an investment another chance, is the moment your strategy falls apart and disaster is likely to ensue.

As far as getting in the market, at this point I would only move in stages, perhaps 25% of your portfolio at a time. Ideally you would buy only after the market undergoes a correction, meaning a decline of some significance, on the order of 5% to 7%, or more.

At these relatively high levels it is important to move cautiously, and extremely important to place strictly followed stop losses under everything you buy.

So be careful out there, and keep a close eye on that bunny.

A Pause to Take Stock

2009-10-04T10:11:00.011-04:00

There's been a slight pause on the way to breaking through Dow 10,000. The Dow closed Friday at 9487, down about 3.5% since the recent highs and about 4.5% off the recent S&P 500 high posted mid September. Scarcely anything to be concerned about or make us consider running for cover.

This is a normal course of events during a bull market. The last two weeks have seen a downtick in most of the major averages, along the lines of what I've been looking for in recent weeks. In truth I'm actually looking for something more, maybe in the order of a 7% to 12% decline.

As stated previously I'll use these corrections to do more buying, particularly in the equity ETF's and Mutual Funds I favor. On the dometic side it will likely be no load mutual funds with a value bent and foreign purchases may be emerging market ETF's.

We remain heavily invested in high yield and foreign bonds for all accounts, even overweighted. They have performed admirably and we'll continue to hold them. We still have a relatively high cash position and we'll use it buy the funds mentioned above, should a significant correction make them more attractive.

Meanwhile, keep your stop loss levels in mind and always remember the two cardinal rules of successful investing. 1) Never, ever accept large losses in your portfolio and 2) Never forget rule number 1.

2009-09-19T08:15:00.007-04:00

And the beat goes on! We're in a new bull market folks. Just consider the numbers. Since the bottom of March 9th the market has risen 20 of the last 28 weeks. In that period the S&P 500 has risen approx. 53%.

The only hiccup was June when the market faltered slightly, down 4 weeks in row, a 7% decline for the month.

But we're off to the races again, with gains posted 8 of the last 10 weeks. The old expression of "markets climbing a wall of worry" is certainly in effect this time around.

We've taken advantage of this 'new bull' by shedding our last 'bear fund', SRS, and getting more heavily invested in aggressive bond funds.

As you may know we purchased an equity fund, SPY, right at the market bottom in early March. In recent weeks we've also purchased high yielding emerging market and domestic corporate bond funds, and a very aggressive equity fund, UNG. All are doing very well and we expect that to continue.

We still hold a large weighting in cash. Although I strongly believe we're in a new bull market I don't want to commit our remaining cash at these high levels.

I'm awaiting the inevitable pullback, likely a temporay event, but one that will allow us to buy at lower prices. And this historically has been the time of year for significant corrections, even in bull markets.

As stated previously, I believe we're in the early stages of a new bull market, but if I'm wrong, we will follow our exit strategy and gracefully exit our positions.

If this is not a new bull market but just another 'bear market trap', then it has to be one of the most powerful upward moves within a bear market in my 30 year career.

Meanwhile, until the markets signal otherwise, we remain heavily invested and awaiting pullbacks that allow us to commit the remaining cash at our disposal.

Greenspan Credibility?

2009-09-11T08:53:00.006-04:00

As I knocked back my first cup of java this morning I spotted the headline of the day. It was "Greenspan predicts another crisis." (See link below)

http://blogs.moneycentral.msn.com/topstocks/?fpn=greenspan%20predicts%20another%20crisis

Does this man have any credibility left? Many place the responsibility for our current crisis squarely on his shoulders, and additional blame for doing nothing to not only prevent it, but even less to alleviate it.

I must add I'm not blaming him entirely. No, I spread the blame around quite liberally. As the great philosopher Pogo said many years ago, "We have met the enemy, and the enemy is us."

Yes, we are all to blame. Congress, for passing laws that allowed the lending insitutions and investment bankers to become 'gunslingers'. Mortgage brokers who encouraged their clients to overstate their income and assets to get into more house than was affordable.

Or how about all the home buyers who happily went along with overstating their incomes, betting on higher prices and refinancing to save the day?

But I don't stop there. How about all the mom and pop speculators who borrowed money against their personal homes and credit cards to 'invest' in real estate? Or all those who used their home as ATM machines to acquire the cash to live beyond their means.

Yes, there's plenty of blame to go around. We've all certainly been chastened and even punished by the financial meltdown. I just hope we've learned from all that's transpired and move to put our houses in order, so to speak.

Feel free to comment or ask any question(s) you may have. I'll try my best to answer them.

Added Ingredients

2009-09-09T09:26:00.006-04:00

We continue to add to our portfolios, moving from defensive positions to taking a more offensive stance.

For the most conservative of our investors we bought a 20% position in one of TCW's total return bond funds, a fund composed primarily of government backed mortgage bonds. It sports a dividend yield of roughly 8%.

For moderate risk investors we bought a 20% position in a high yield bond mutual fund from Metropolitan West, one of the premier income fund managers in the country. It's dividend is in the 10% range.

In addition I purchased a 10% position in a natural gas ETF today for Moderate and Aggressive risk investors only. This fund, UNG, has been beaten down 85% since mid 2008. It doesn't get much worse than that.

A recovering economy and the heating season nearly upon us makes this a strong candidate to recover some of it's stunning losses over the past year.

It's an exceptionally volatile fund so we'll put our stop loss in place and keep a close eye on it.

We continue to expect a significant stock market correction in the near future but as long as our bull market signals hold steady we'll use corrections to take additional positions. We'll likely buy emerging market ETFs and quality domestic stock mutual funds.

Everyone is waiting with bated breath for the Fed to release it's so called 'Beige Book' this afternoon. It's a regular report commenting on the conditions of the economy.

As you know I pay less attention to economists data and projections and place far more credence on what the markets themselves are telling us. And the markets are telling us we are in a 'Bull Market'.

Until the it tells us otherwise I will continue to seek buying opportunities.

Transitions

2009-09-05T14:35:00.010-04:00

In spite of a struggling economy the stock market is entering the stretch run of an extremely good year. The major averages, domestic and foreign, are all up double digits year to date.

To take advantage of the potential for future gains I continue to replace our high quality bond funds with new funds with higher return potential.

I sold two high quality bond fund holdings Friday. It's a continuing process of transitioning from lower risk income funds to a higher risk profile with high yield funds.

I purchased an emerging market bond fund a few weeks ago and soon will use the cash from the above sales to buy positions in high yield bond funds, both municipal and corporate.

Even though I fully expect a significant correction to take place in coming weeks I continue to believe we are in the early stages of a 'Bull' market.

This belief is based on a number of technical indicators, including moving averages. I will likely use any corrections to take additional positions in exchange traded and mutual stock funds.

As always I will place stop losses under every holding we own. These 'stop loss' points can range anywhere from 5% under the trailing high share price for high quality, low volatility funds to as much as 12% for higher risk, higher volatility stock funds.

The Pause That Refreshes

2009-09-02T13:32:00.017-04:00

Ah, just a small pullback to pause, consolidate gains, and then move to new highs. What's this, a prediction on my part?

Well, not really. My predictive powers have never been strong and besides, why predict when the market sends us signals on a regular basis.

That sharp pullback Tuesday now has the major domestic indexes off about 4% from the late August highs. Just another garden variety 'mini-correction' to this point.

Is it over and now onward and upward to new highs? We all know the markets are up in a big way since the March lows so going on to higher highs seems a poor bet to me. History tells us we may be in for a steeper correction between now and year end.

I base this partially on this over done six month run up and the month of September having a reputation (well deserved I might add) of crushing our high hopes. How bad has it been you ask? See below for the depressing numbers.

Ranked by decade, Septembers compared to all months & Septembers Average Return

2001-2008 12th -3.0%

1991-2000 10th +0.2%

1981-1990 12th -1.8%

1971-1980 12th -1.3%

1961-1970 9th +0.4%

1951-1960 12th -1.2%

1941-1950 8th +0.4%

1931-1940 10th -3.2%

1921-1930 12th -2.8%

From Mark Hulberts column at Marketwatch.com

For our protection I purchased a hedge position today, symbol SRS, in the event a more serious downturn overtakes us in coming weeks.

I continue to hold our quality bond ETF's, both corporate and municipal, and SPY as our only equity position. Whatever the markets bring our way we will be nimble and sell if we need to based on our stop loss exit strategy.

We remain in what I see as Bull Market territory at this time but as always we remain vigilant for whatever the markets have in store for us.

The Bull is Back!

2009-08-20T22:59:00.014-04:00

Yes, the bull is back! I believe we are in the early stages of a new bull market. Even with all the bad news still on the table, this bull is showing some sturdy legs.

(Click chart to enlarge)

Supporting my view is the above chart. It's a picture of the S&P 500 over the trailing 10 year period. The choppy green line is the price line of the S&P 500, the solid orange line is the 10 month moving average. (I've simply converted the 200 day moving average to 10 months for clarity.

Note the solid line turning up in early 2003, when the market went from a low of just under 800 to its' peak of nearly 1600 in late 2007. Take a look at the same moving average line all the way to the right of the chart.

It has finally moved up after a near free fall from late 2007 to its's current up position. This to me signals a new bull market, and it's time to buy.

But just a minute. This market has had a remarkable runup since its' early March lows. The S&P 500 is up 50% since that time. Could we be buying at too high a price at this stage? Are we due, even overdue, for a significant correction? Aren't we approaching the dangerous time of historical market corrections of early Autumn?

In time Mr. Market will tell us the answers to those questions.

We have moved cautiously, in stages so far this year. We bought high quality bonds many months ago, and a S&P 500 fund in early March.

Our plan is to continue to be cautious but more aggressive. We'll begin selling our conservative bond holdings and replacing them with more aggressive ones. We did just that recently with the purchase of an emerging markets bond fund.

We'll likely continue that process by replacing some of our high quality bond funds with high yield, both municipal and corporate.

We'll continue to be patient and as market corrections take place over the next weeks and months we'll use those as buying opportunities. We'll buy domestic and foreign positions, both mutual and exchange traded funds.

If this turns into just another short lived 'bear market rally' we will sell based on our protective stop loss points. However much we may believe this is the beginning of that new bull we will always be vigilant and protect our clients assets.

Stuck in Neutral

2009-07-22T10:22:00.005-04:00

The market has inched back to it's highs of mid June as measured by the S&P 500 index. That could be considered a good thing as it didn't break down through it's support at the 855 level.

As previously discussed we experienced that 'mini' correction over the last few weeks. A correction that took the S&P 500 down about 8% or so from its' previous high. We've since recovered that give back, but nothing more.

I still find this market suspect due to all the headwinds it faces. Continuing high unemployment, predicted to go higher still, businesses and households dramatically reducing spending, more bad news on the foreclosure front, the list goes on.

And next up? Commercial foreclosures. Already we're seeing that marketplace being decimated. And no wonder. Consumers and businesses dramatically scaling back spending translates to companies going out of business. You know, one plus one equals two.

We remain content holding our high quality bond ETF's and a position in SPY, an S&P 500 index ETF. Our market tracking indicators signaled a buy on these early in the year.

As you know I do not attempt to read the tea leaves. I will await my favored indicators and tracking tools to provide direction. At this time the Bull remains "stuck in neutral."

At the Gate!

2009-07-16T23:22:00.013-04:00

The bull is raging at the gate, clamoring to be turned loose! Click the chart to the left and note the S&P 500 (blue line) has broken through the 200 day moving average on the upside. (green line)

That hasn't been the case since late 2007 and of course that was to the downside. (Kudos to Doug Short at http://www.dshort.com/ for the chart and info).

Below is a link to another chart, courtesy of Big Charts, that illustrates the 200 day moving average over the last 10 years. (I've converted the 200 day into a 10 month moving average line for clarity).

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=%24inx&time=&freq

The moving average line is flat at the moment but closer to changing direction to the upside than at any time since early 2003. Remember this is the moving average that has been remarkably accurate in reflecting turning points in both bull and bear markets.

I sold my last inverse fund, ZSL, yesterday. It served us well during the recent 'mini' correction but was giving ground during this run up.

We currently own a S&P 500 ETF and a large contingent of quality bond ETF's. I am poised to buy more stock ETF's and mutual funds only when technical indicators like moving averages flash green, which could be soon.

And The Beat Goes On

2009-07-11T23:18:00.013-04:00

The 'mini' correction I wrote about recently is becoming mightier of late. The major averages continue to give back gains (the S&P 500 is down 7.5% since its' high of a few weeks ago). So yes, we remain mired in the 2008 - 2009 'Bear Market'.

Since January 1 the Dow Jones is down 5.42%, the S&P 500 down 1.27%, Russell 2000 is down almost 3%. Among the major domestic averages only the NASDAQ has posted gains year to date, up a hefty 11% for the year.

But even the NASDAQ has given back nearly 6% of its gains the last few weeks.

So, where does all this leave us? Are we headed toward another complete collapse? Or maybe a testing of the lows and then off to the races?

As usual my crystal ball is cloudy and I have no answers. But then our money management system needs no crystal ball, predictions or throwing of darts.

We keep things simple. The current trend is down and we do not fight that obvious fact. We invest our clients hard earned nest egg with investments tracking the primary trend. That's why we remain heavily in bonds and own hedges like inverse ETF funds.

(Inverse funds move the opposite direction of the index they're pegged to.)

Remember, don't fight the trend, and always, always protect your assets with an exit strategy.

The Bear Lives On!

2009-07-06T22:32:00.002-04:00

Twenty months and counting. That’s how long this Bear Market has persisted, from October 2007 to now. We’ve had short term rallies occasionally but nothing to indicate a new Bull Market is anywhere in sight.

More recent bad news on the employment front pushed the market lower initially today before recovering and finishing to the upside. The Dow and S&P 500 finished up but the NASDAQ, though recovering early losses, could not finish in the black.

The market is going through another corrective phase, this one modest so far, down 6% or so over the last few weeks. This has prompted me to take another hedge position. I bought ADZ today, an inverse commodity fund. This adds to our hedges because we bought ZSL, an inverse silver fund, in mid June.

We sold gold today because it moved down through its stop loss level. I set stop losses 8% below the trailing high price but because gold tends to be more volatile I allowed it to go a bit further. The gold decline has been offset though by the gains in ZSL.

We’re now headed into the Dog Days of Summer where historically trading volume tends to be lower. Trading volume has decreased from its prior levels during the recent run up through March and April. That run began at 667 on the S&P 500 and peaked at about 957 before ending at today’s close of 898.

Our Moderate and Conservative Risk accounts continue to hold a large weighting in short and intermediate term bond ETF’s, corporate and municipal. As much as 40% to as high as 80% of the total portfolio is in bonds, depending on account risk level.

Aggressive Risk accounts own no bonds and are 60% in inverse funds currently. I guess it’s clear from this commentary I do not hold a positive view on the stock market at this time. The moving averages I track have not moved up sufficiently to take a bullish view, trading volume is down, and sentiment is bearish.

I’ll hold all positions until the necessary indicators flash green. Feel free to contact me with any questions or comments you may have.

"Fail Safe" Investing

2009-06-27T23:50:00.002-04:00

What is “fail safe investing?” In it’s simplest form it means an investment strategy designed to protect our portfolios during major market corrections. Sounds like the prudent thing to do, wouldn’t you agree?

Yet few people or investment institutions do it. It seems just about everyone, amateur and professional alike, has adopted the “Buy and Hold” strategy, come what may. How else to explain the devastating losses suffered by so many in 2000 – 2002, and again in 2008?

I believe there is a better way and I will attempt to explain it here. To illustrate, a picture is worth a thousand words they say, so here's my picture.

(Click chart to enlarge)

The above chart depicts the S&P 500 average over the past 10 years. The dark line is the price of the S&P 500 and the light unbroken line is the 200 day exponential moving average.

Note the 200 day line from left to right. It peaks in late 2000 and then begins a downward slope that lasts until an upward move begins in early 2003. It remains on an upward slope from 2003 through late 2007 where it starts a precipitous decline through 2008 and into early 2009.

It then flattens out about April 2009, illustrating the big rally that has carried the S&P 500 average from a low of 667 in early March to 918 by late June 2009. But note that it has not yet begun to move up.

What can we glean from all this? Simple. We can choose to heed the clear message given and avoid severe bear markets by tracking the 200 day moving average. We can sell our stock, mutual fund and etf holdings when the average begins a serious downward move, like the two depicted above.

We can move to money market and treasury bills because that’s a port of safety in a storm. We can avoid these horrendous declines and earn some interest while awaiting a new trend that carries the 200 day line upwards again.

I have analyzed moving averages back to the early 1970’s and they have been remarkably accurate in signaling the beginning of both bull and bear markets. Not perfect, but quite reliable.

I believe the 200 day moving average is an important tool to use in any investment market as volatile and risky as the stock market.

Of Bulls, Bears and Armadillos

2009-06-22T21:14:00.014-04:00

There are bull markets, there are bear markets, and then there are armadillo markets. Armadillo markets? Yes, that’s the market where you don a cloak of armor, much like an armadillo.

The reason? Protection from extreme market declines that can do serious damage to our portfolios. The kind of move that wiped out 37% of the S&P 500 last year alone! The move this year that brought more of the same with the S&P 500 down 24% from January 1st through early March.

The roller coaster ride we find ourselves on the past couple years has now taken us to nosebleed levels, up as much as 42% since March. But we're off those high levels today in what seems like an eye blink. This current mini correction the past few days has shaved about 6.5% off the highs of the year.

So, how do we make like the armadillo in these extreme times? By using a few prudent steps including setting stop losses and even hedging our portfolios with inverse funds.

http://www.investopedia.com/terms/i/inverse-etf.asp

First, we buy stock ETF’s (exchange traded funds) and immediately put a stop loss in place. Our stop loss, meaning selling trigger point, is initially placed 8% under our purchase price.

If the ETF’s we buy begin rising we move the stop loss up so it's always 8% under the highest price achieved. This is known as a trailing stop loss. If the fund penetrates this 8% stop loss on the downside we immediately sell, no questions asked. (The only exceptions are if the fund is one with a great deal of leverage, a topic to be discussed another time)

We also buy hedge positions when we see a need for it. We use inverse ETF’s to protect the value of our portfolios. They are known as inverse funds because they move in the opposite direction of the market, (index) to which they’re linked.
(Caution: Using inverse funds may not be suitable for all investors due to risks involved)

For example, the ProShares Short S&P 500 fund, symbol SH, will generally track the S&P 500 index, but in the opposite direction. If the market continues a downward course we would begin buying inverse funds to protect portfolio values.

Using these and other strategies over the years has protected us from suffering the extreme losses experienced by so many.

(Thanks to Mark Stevens of MSCO for the armadillo analogy).

Bullish Interruptus?

2009-06-16T22:42:00.029-04:00

It seems we’ve hit another speed bump on the way to a new Bull Market. But if the bull is truly snorting and stomping at the gate then this little hiccup won’t seriously deter us.

Click the link below and you’ll see a chart that illustrates the 200 day moving average line and its travels over the last two years. Good news! It has stopped its freefall of the past year and a half, flattened out, and may be on the cusp of a new move to the upside.

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=$inx&time=&freq=

This flattening effect and potential upward move of the 200 day line is much like the state of our economy. The economic freefall may be over and stabilization seens to be occurring. The upward spike we’re all looking for may not be far off. That’s not to say the economy will come roaring back anytime soon, but it will be back.

The usual crosscurrents are at play. On the one hand we have high unemployment and high foreclosure rates, as well as low consumer sentiment and spending. In the bullish camp we can point to a report from the Commerce Department citing building permits and new housing starts coming in better than expected. In addition inflation and mortgage rates remain low.

My recommendation? Tune out the ‘white noise’ blasting us from all quarters. It’s distracting, non productive and confusing. Focus instead on the tools at our disposal. Those tools, when used correctly, allow us to be successful with our investments, regardless of the hot air emanating from the talking heads and self anointed pundits.

The Proverbial Picture

2009-06-12T20:30:00.024-04:00

To paraphrase, a picture truly does speak as a thousand voices. (Click link to see chart of 39 week moving average)

http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=%24inx&time=&freq=

Many people are concerned they've missed out on this latest upside move since March. Many are probably just itching to put their money back to work in the stock market.

But beware, for the chart is telling us we are not yet in a new 'Bull Market', at least not according to the 39 week moving average line. (More often depicted as the 200 day moving average, but the two are virtually interchangable)

(Investopedia explains Exponential Moving Average - EMA: This type of moving average reacts faster to recent price changes than a simple moving average. In general, the 50- and 200-day EMAs are used as signals of long-term trends).

Note the line began to move down in late 2000 and did not begin an upward move until early 2003. The line remained on an upward trajectory from 2003 through 2007, then began it's downward move late that year.

Just about perfect timing, wouldn't you agree? I have analyzed this technical tool back to the early 1970's and it's been very accurate in heralding the turning points of both Bull and Bear markets. Not infallible, but reliable.

And the point of all this? Just to say we have not yet entered Bull market territory because the line has not turned up during this magnificent short term run. It may soon do so, but that remains to be seen.

If we are in the early stages of a new long term Bull market this moving average will tell us and we'll have ample time to more fully invest in it. Meanwhile, let's be patient and keep some of our powder dry until the risk reward ratio is more in our favor.

Oh So Tantalizingly Close!

2009-06-05T22:59:00.003-04:00

This stock market runup has been ongoing for three months and is up 40% or so from the previous lows of early March. But, we are not yet fully committed.

(Click chart to enlarge)

Our 'All Weather' tracking system is still flashing a few yellow lights so we remain cautious at this point. This may be another one of those 'Bear Market Traps' that capture the unwary in its' grip.

But we are oh so close. Our system flashed enough green lights to get us in a gold fund very early in the year and then more green lights caused us to buy a S&P 500 fund in early March.

But we still await the final bells and whistles to get us 100% committed. Stay tuned because it could come at any time now.

See our latest newsletter at:

http://ezinearticles.com/?The-Stock-Market-Bull-is-Back,-Not!&id=2409211

The Carnage Continues

2009-01-22T20:39:00.008-05:00

Here we are in 2009 and in the immortal words of Yogi Berra, “it’s déjà vu all over again.” The markets continue to be volatile, although more volatile on the downside by far.

We remain entrenched in a recession and financial maelstrom for as far as the eye can see.

We continue our stance of avoiding the stock market, but that’s not to say we’re standing pat in low interest money market funds. We’re actually heavily invested, but in bonds, not stocks, or more accurately, bond ETF’s, (Exchange Traded Funds)

We have owned U.S. treasury funds for some months now, and have recently ventured into high quality corporate bonds and high yield municipals. We'll likely buy an emerging market sovereign bond fund soon.

Why do we own these funds? Simple. The market is telling us to own them. We are not predicting or otherwise making macro economic calls. We are simply doing what the great Al Thomas recommends doing, namely, buying those investments going up, and avoiding the ones going down.

See Al’s web site here. http://www.mutualfundstrategy.com/

Making these adjustments over the past year and into this year has saved our clients from the financial meltdown experienced by so many.

We will remain flexible and open minded going forward, and will seek any and all opportunities as they arise. We are not captivated by the Wall Street mantra of ‘buy and hold’ because we know that can sometimes be dangerous to one’s financial security.

Markets Plunge, Investors Run

2008-10-09T22:49:00.006-04:00

That likely rally I predicted just a few days ago amounted to little more than a brief sputter, then a fizzle, and the markets have since entered free fall. There is little in the way to stop the downward momentum, so we have moved to safe harbors.

We have been selling our mutual funds in stages over the last few months and sold the last of our stock mutual funds through August and mid September. We took new ETF positions in late September but as soon as I recognized we weren't getting the move to the upside expected I quickly sold them. We are now out of the stock market completely. The markets remain too dangerous for any rational investment strategy to succeed.

Our portfolios now consist of gold, treasury securities, and a big position in money market. We will remain in this stance for as long as it takes stability and reason to reappear, and I don't believe that will be any time soon.

Explosive Rally?

2008-09-25T21:47:00.001-04:00

Is an explosive rally to the upside in the cards? I believe it is, and I think it's coming soon. The markets are still in a downward trend but lately appear to be marking time. Everyone's waiting for the results of the multi-billion dollar bailout package being negotiated by Congress and the Administration.

Once word leaks out everyone is on board and the legislation is near completion I believe the markets will explode to the upside, at least in the short term. Longer term is a tougher call.

I'm usually not one to make predictions like this but I believe this scenario is so likely I have taken steps to participate. I've recently sold nearly all our inverse ETF's (funds that move in the opposite direction of their targeted indexes) and taken new positions in technology, the S&P 500, homebuilders, banks, and oil, ETF's all.

We remain heavily in cash (30% to 60%, depending on risk level) but I expect the new purchases we've made will carry us upwards over the next few days and even weeks. We will await a clear market trend before taking any additional steps. Caution is the watchword in these uncertain times.

The Disaster Marches On!

2008-09-17T23:01:00.001-04:00

But we have chosen not to participate! Yes, over the last few months we've sold nearly all those investments (mutual funds) going down, down, down. We are now 40% to 60% in cash, depending on the risk level of each portfolio.

But all is not lost, or hopeless. We've actually been gaining ground in September. How are we able to do it? By selling those no-load mutual funds getting beaten up, and, taking positions in inverse exchange traded funds. (ETF's) (Inverse funds are designed to move in the opposite direction of the index it replicates)

We also recently purchased a gold ETF, and remain positioned in our Commodities, Dow, NASDAQ, and Euros, inverse ETF's all, with the exception of the gold fund.

Where and when is this 'Bear Market' going to end? I have no idea, and the reality is, neither does anyone else. The 'market seers' and pontificators have no more inkling about that than you or I.

In the end we know a bottom will be reached and the market will rise again, just as it has always done.

Because we allow the market to direct us by what it does we'll remain in our inverse funds and cash positions until the trend reverses. Meanwhile we will attempt to profit from the market no matter which direction it may be going, up, down or sideways.

Another Shoe to Drop?

2008-08-31T22:12:00.001-04:00

I've recently taken another step to protect ourselves from any serious losses. I sold some of our core holdings, funds we have held for many years. Even though they served us well for so long they were being pummeled so I had no choice but to cut them loose.

The stock market has continued to decline over the summer and with volume likely to pick up after the holiday we could be in for more of the same. To protect our capital we are now 40% - 50% cash and 10% to 15% in short (inverse) positions, depending on individual risk level.

We're still running modest losses year to date and the plan is to begin turning that around over the next few months by searching for areas trending upward. At this point not much is in an uptrend so we'll stay heavily in cash along with a number of short (inverse) positions until the trend changes.

As the old saying goes, "don't fight the trend." Or as I say, find a trend and get on board, even if that trend is primarily the inverse ETF's I've been employing in recent years. (They're designed to move in the opposite direction of their targeted index).

Ho Hum, More of the Same

2008-07-25T21:53:00.002-04:00

It looks like we've settled into the dog days of summer with more of the same being thrown at us, seemingly every day. Stocks are down, real estate, down, consumer confidence and spending down. And that great arbiter of all things large and small, women's hemlines, also down.

The only things up it seems are the cost of gas, the unemployment rate, and breakfast, lunch and dinner!

As is usually the case our core funds are holding relatively steady, some with gains for the year while others are posting modest losses of just 2% to 3% year to date.

Our inverse funds are helping prop up our portfolio values so we're hanging in there with modest losses, down just 4% to 5% for the year across our portfolios. This level of loss can be quickly made up once the 'Bull Market' resumes.

Another False Alarm?

2008-06-21T22:12:00.002-04:00

The markets have head faked us again! From a low of about 1,256 in mid March the S&P 500 began rising through April and into mid May, peaking at the 1,440 level.

It has now run into that proverbial 'wall of worry' and has been retracing its' past downward trajectory, currently at the 1,318 mark as I write this.

It appears to be just another 'Bear Market Trap. You know, that pesky phenomenon that often fools us into believing we've seen the bottom of a 'Bear Market' when in fact it turns out to be a short lived rally. A rally that doesn't have enough strength to endure over a longer term.

And make no mistake, we are in a 'Bear Market'. It has persisted since the highs of mid October 2007, and the major indexes are all down 16% or more since then.

The question now is, where do we go from here? As always I have no predictions because predicting the short term direction of investment markets is a fool’s game. No one can consistently get it right so if you place your bets on being right you will, sooner or later, be disappointed.

Our philosophy holds steady. Build a core portfolio composed of consistent performers able to resist market downturns. Sprinkle your accounts with a dose of sector funds whose performance warrants ownership. And even buy a position or two in inverse funds as a hedge during market corrections. (Inverse funds are designed to do the opposite of their respective sector).

Breakout !!??

2008-05-29T22:12:00.001-04:00

Finally, a breakout to the upside! This one began in mid March, with a low of 1,256 on the S&P 500 and currently 1,399 as I write this note. That’s an 11% gain in a few short weeks and could herald the start of a new, longer term advance.

We’re participating nicely in the uptick as all accounts are just barely underwater year to date, about a negative 1.5% or so across the board. That handily beats the major domestic indexes as they are down anywhere from 4% on the Dow Industrials to a negative 4.5% on the S&P 500, and a negative 6.5% on the NASDAQ as I write this note.

Are we in the clear now and headed for a banner year? It’s just too early to tell. Particularly with the greater than ‘normal’ volatility the markets have exhibited over the last year or so. All kinds of bad news is still out there but the market often discounts the news and looks ahead, and that may be what it’s doing now.

We’ve enjoyed positive market returns five calendar years in a row, 2003 - 2007, will it be six?

We still own an inverse fund tied to interest rates that will gain value as rates continue to rise over time. We remain well positioned in our favored ‘All Weather’ mutual funds, a smattering of commodity ETF’s, and a mix of guaranteed annuities. This form of allocation continues to serve us well in all types of markets.

A Broken Record

2008-04-07T10:06:00.001-04:00

I know it's sounding like a broken record but it is what it is. And what it is, is more of the same. Namely continued uncertainty in the economy, and volatility in the investment markets.

As stated in one of our recent comments most major markets have been in decline since mid October. Yes, we've had bursts to the upside occasionally. Witness the recent explosion just a few days ago after the announcement of the Fed's interest rate cut, the Bear Stearns deal, and the infusion of cash into the system. Can all this stimulus turn things around, or is it just a momentary respite from the turmoil?

The major indices, (Dow Industrials, S&P 500, and NASDAQ) hit a low point in mid March, but is it just a 'Bear Market' trap? It's just too early to call at this point.

We have made some adjustments, selling a couple inverse funds and buying a homebuilder ETF for our Moderate Risk investors. Yes, I can barely believe it myself but I had to do it.

No matter what I think about where the economy is going in the near term I've learned through the years the market is a great deal smarter than I am. And the market was telling me to sell the inverse funds and buy homebuilders and real estate.

Remember we continue to hold our 'All Weather' core funds, upwards of 60% of our portfolios. And they are holding their own very nicely.

Our performance has slipped just a bit over the last few weeks but we're far outdistancing the major indexes, and during times like these it's crucial to protect your capital while awaiting the return of the 'Bull.'

Another Wakeup Call!

2008-03-01T23:14:00.001-05:00

The markets continue to send us a message; I just hope everyone is listening. The message is we have an economy in trouble. The world of finance has become a house of cards, and there's a great deal of selling pressure across the market spectrum.

Fortunately for our clients and family we recognized many of the problems and have managed to largely avoid them. I’m pleased to report our client accounts are performing relatively well so far this year.

Our worst performing portfolios are on average posting a negative 1% year to date, while our best performing are on average posting a positive 2.25%. Nothing to jump up and down about but compared to the dismal numbers of the major indexes it’s looking OK. The three major indexes, Dow, S&P 500 and NASDAQ are posting negative returns, down 7% to 14% year to date.

We continue to hold our ‘All Weather’ core mutual funds and all are doing fairly well. They are withstanding this market correction like they’re designed to do. Most are in the black year to date and the few in the red are down just 2%. Although one laggard is posting a negative 4% so far, but it’s still a keeper. All in all an outstanding showing.

We hold just one inverse fund at this time, a technology fund, and as expected it’s doing very well. In addition we hold a number of positions in commodity ETF’s, including grains and precious metals. These are lending buoyancy to our Moderate Risk accounts and have led to positive returns across all portfolios holding them.

I’m not one to predict the future, and I don’t know where things are going from here. I just know our philosophy of buying and holding ‘All Weather’ funds with a complementary mix of Alternatives like commodity and inverse ETF’s is protecting our clients from harm. This strategy has proven to be a successful and prudent money management strategy over many years.

This is Serious!

2008-01-18T21:47:00.001-05:00

I haven’t posted anything for some time now; I guess so many other things get in the way I just don’t find the time to get here. But what’s going on in ‘Finance Land’ now is enough to move me to make significant changes in our portfolios, and to even tell the world about it. Well, at least our small part of the world.

This may, finally, be the ‘Big One’, the one for which I’ve been preparing for months now. A big one is defined as a significant market correction, in the high teens or more on the major indexes, and lasting a fairly lengthy period of time, upwards of a year or sometimes more. The corrections of the last few years, though worrisome, generally ended within a few weeks at most and carried the major market averages down just 10% or so.

The two most important rules of successful investing are 1) don’t lose money and 2) never forget rule number 1. This philosophy guides me in everything I do so therefore, to protect our capital, I’ve made some important changes to our accounts.

I recently sold a couple poorly performing stock funds and replaced them with treasury bond funds, as well as more inverse funds. (Inverse funds track their respective market indices, but in the opposite direction).

I bought inverse oil and technology funds and they of course are doing very well. The idea is to hedge our overall portfolio against continuing decline as these funds will appreciate in value as the markets continue to crater.

We now hold anywhere from 20% to 30% of our portfolios in investment vehicles that have and should continue to perform well for us during any continued market selloff. This should go a long way toward protecting our capital, and may even lead to positive returns through these trying times.

Has the Bear Finally Awakened?

2007-11-21T10:11:00.002-05:00

Are we on the verge of a serious ‘Bear’ market? Is all this volatility finally leading to a serious decline that will finally push the market over the edge? No one can know the answer to that question of course, until after the fact.

In order to protect our clients’ capital I have taken some modest defensive steps today, selling one position, a small company value fund, and buying one of the ProShares ultra short funds. (The type of fund that goes up when the market goes down, and vice versa). We now own two ultra short positions, one in technology and the other basic materials.

The majority of our positions are holding up very well in this climate, giving ground grudgingly, which is precisely the reason we own them. They have historically performed well in the good years, and have posted modest losses, and in some cases even gains, in the bad years.

One of our major goals in managing money is to protect our clients’ capital during severe market declines. Large losses can seriously damage one’s long term financial security. We take this task very seriously, for in a sense our clients’ money is our money, and we guard it zealously, just like we guard our own.

So let’s all hang on, for no matter which direction the markets decide to go in the short term we will all be rewarded in the long term. For after all, we are an important part of the great engine of growth and prosperity called ‘Free Enterprise.’

Volatility, We Know Thy Name

2007-11-01T10:12:00.001-04:00

Here we go again! It seems like just yesterday we were experiencing these topsy turvy times. Actually it was just two months ago and here we are at it again. The markets are frothy, the headlines are fearsome, and the big bad bear may be stirring in his lair.

The question is, will he burst out of his lair and take a large bite out of our hard won gains? Or is this just another hiccup before he returns to his restful sleep? Only time will tell. Meanwhile we’ll keep a close watch.

Off to the Races!

2007-09-19T22:11:00.004-04:00

And we're off the races! Nothing like a good interest rate cut to get everyone's attention. Never mind that the cuts won't really do much to cure the credit problems, but hey, who cares?

As long as the deeper problems of all those high risk loans carried by institutional investors are papered away and the markets continue their upward flight, well I guess we'll all continue to party like 1999.

Don't be fooled by the short term euphoria though. As the man said, "the chickens will come home to roost", and this party will come to an end with some pain. We can't know when and to what degree, but we can prepare for it.

Our preparations begin at the beginning. We are always heavily invested in what we call "All Weather" funds. These are funds that have performed admirably over the longer term and have resisted market downturns in a heroic fashion. Some of these funds even posted positive returns through the 'Bear Market of 2000 – 2002.

We took some new positions last week, mainly in our favored value oriented funds, specifically international. I guess we all saw the rate reduction coming but these buys were made for the longer term. They are the "All Weather" core holdings type of funds that have consistently performed well over the longer term. They also tend to hold up well in market corrections as described above. We now have a 30% position in foreign holdings and are very comfortable with that.

(By the way we sold our inverse funds. As that other man said, "never fight the tape.")

Stay tuned for a mad dash to the finish line, but watch out for those chickens!

Volatility

2007-08-17T21:48:00.001-04:00

Volatility remains the order of the day. The Dow was down as much as 317 points yesterday, but gained nearly all of it back by days end.

The pundits are out in force, some pounding the table with exclamations of buy, buy, buy, while others are preaching the end of the world is upon us. They're the ones screaming about selling our financial assets and stocking up on gold and canned goods. What's an investor to do?

I guess I'm somewhere in the middle of those two worlds. We're continuing to hold our 'All Weather' stalwarts, even though most of them have taken a hit the last few weeks. Our portfolios have given back most of our gains accrued through mid July, more than I would have expected, but still far less than the major indices. And far less than so many stocks and mutual funds. Even so, we remain in the black for the calendar year.

We continue to hold our "inverse" funds in real estate, financials, and basic materials, and we hold significant cash positions across all portfolios. (Inverse funds are designed to do the opposite of what the respective sectors are doing, so of course they have boomed during this correction).

We intend to stand pat until the markets signal a clearer direction, whether up or down. Objective number one is to protect our capital while attempting to post positive returns in every calendar year. This year is turning out to be a challenge on that last point.

Market Hit

2007-08-10T22:18:00.002-04:00

The markets have taken a hit over the last few weeks, as violent as any we've experienced in some time. Our accounts, though designed to weather these types of storms, have also succumbed to a degree. Just not as much as the major indices.

The reason is due to our healthy concentration of value oriented no-load funds. These funds have performed exceptionally well even during the 'Bear Market' of 2000 – 2002. We believe they will continue to perform relatively well during this, so far at least, modest correction of 6% to 7% off the highs of mid July.

So, where do we go from here? As always my crystal ball is foggy, if not downright nonexistent. There's a great deal of uncertainty hanging over the market(s) and the economy as a whole. The mortgage lending problems may have a long way to go before we come out on the other side of this.

Also, we've been on a "Bull" run since October 2002 and values are at the high end of their range. A "typical" correction of 8% to 12% has been in the cards for some time now.

I believe I've built our portfolios to withstand the "normal" corrections that will always be part and parcel of investing. Because we have not yet crossed into dangerous territory we'll stand pat with what we currently own.

We have purchased modest positions in "inverse" real estate and financial funds for our higher risk accounts as a sort of 'insurance policy'. These funds have been rising in value during this market decline, just as they are designed to do.

If the deterioration continues and the indices cross into "Bear" territory we will take action. That could range from selling our worst performer(s) to buying a "Bear" position. That buy could be another inverse mutual or exchange traded fund. We shall wait and see.

(Inverse funds are designed to perform the opposite of the market(s), i.e. market up, inverse fund down, market down, inverse fund up).