The 3rd Quarter 2011 is over and I have a slightly longer video this week because I want to address the current environment and how things may shape up going forward.
A big theme is my advice to assess your overall plan and risk tolerance, and also to ensure you’re looking at both positive and negative points of view on the markets instead of just one view over the other.
I send my newsletter and videos on a weekly basis, so if you watch only a few througout the year, at least watch my more comprehensive quarterly videos.
The big question we need to answer is “what happens after a Greek default?”.
Lehman’s collapse was a full year before the financial crisis of 2008, and it’s very probable the full impact of Europe imploding won’t be felt for some time.
We, as investors, need to stay informed and ready to react.
Please continue to read my newsletters and blogs, and have my number in your speed dial. 303.747.6455
I’ve had a relatively low position in stocks for clients for quite some time, but I’ve decided to lower it even further. I’m quite concerned about the correlation between Europe and the US, emotion/news driven volatility, and the uncertainty about what the Fed will do.
The risk just doesn’t warrant having as high a percentage as I’ve had.
On the flip side, profitability, efficiency, and cash balances have all been rising in the firms that comprise the S&P 500.
Is the return worth the risk?
Click on video to hear more.
TRANSCRIPT:
Hi there, Mike Brady with Generosity Wealth Management, here in Boulder, Colorado and the question is “where do we go from here?” And we’re getting a lot of conflicting information. In the last month or so we’ve had huge volatility. We’re basically in a trading range, we have been for the last three or four weeks, but it’s been a trading range that’s extremely volatile. And we’re talking a half percent to one percent up over a few days and then “Boom!” a negative two, three, four percent.
We’ve seen the correlations between the European markets and the U.S. and Asia; very high. And as we look back, five, ten, twenty years, the correlations for the international market have become increasingly correlated. We’re a global market now. And so what happens in Europe is, irritatingly, affecting our situation here today.
We’re also seeing a lot of emotions. And we’re seeing a lot of news driven markets- which just absolutely irritate the heck out of me. We as a market, as investors, keep waiting for some bail out, some news from the government: and that just absolutely distorting things.
Philosophically, I’m going to go off on a kind of a slight tangent here. I understand that the government will always be a part of our free market system. It’s never been 100% free. However, the interaction we’re having now, it’s like this 900 pound gorilla in the room; that makes things kind of difficult.
Kind of on the flip side, as we’re looking at some of the positive things. We’ve got almost all of the S&P 500 have done their earnings for their second quarter. And year over year growth is about 12% over the previous year. And if we take out some of the financials, we’re talking almost 20% earnings, net earnings growth.
You’ve got net margins, back in 2008, that’s efficiency of almost 6%. Now we’re going all the way up to 9.27. So when you look at companies, at balance sheets, Apple’s got 76 billion dollars in cash. I mean a lot of these companies have cash on the side-lines, they have been very efficient. Unfortunately, the negative effect of that is they have trimmed their work forces. But as you’re looking at some of the larger companies, the S&P 500, they’ve become very efficient over the last three or four years. They’ve kind of trimmed, as they see it, the fat, and they’re sitting on huge sums of investable assets that they can redeploy at some point. They’re just not redeploying it right now. And so that’s very frustrating.
I am, long term, when I say long term, we’re talking three to five years, bullish on the market. I think that, you know, we’re set up for that. But on the flip side, I mean, I hear all the arguments about how Europe is imploding- which it is. How that’s going to drag our financial system down. What’s going to happen with the EU and the Euro is anybody’s guess. And so, there’s a lot of reasons right now where it could go either way. I mean I just want to sit here and admit that.
What I’m doing, in my portfolio, is I am decreasing some of the equity positions that I have. I’m absolutely going to continue to have some. But from the very conservative to the very aggressive models that I have for clients, I am decreasing the equity positions. Most recently, most likely in the next week or two, we’re going to hear what, if anything Bernanke and the Fed is going to do. We’ve been talking about a little bit about this twist where they buy a bunch of medium to long duration treasuries- to shore up…, well to keep interest rates low.
So, you know, there’s a lot of things in play but I’m just telling you that right now I’m going to decrease my equity position. The market could go up. Once again, I’m going to be happy three to five years from now. But right now, it’s kind of hard to analyze which way it’s going to go. And in that particular case, are you getting the return for the risk that you’re taking and right now I’m questioning that. So I’m going to reduce some of my equity positions and decrease the percentage, of course still stay in the game.
Anyway, Mike Brady, Generosity Wealth Management, here in Boulder, Colorado, my phone number is 303.747.6455.
I have a new blog on my web site, www.generositywealth.com. And I highly encourage you to go there and look at it. I’m going to have archives going back a number of years. And I think it hopefully will be, I think it will be very helpful and very interesting as you go back maybe two years of weekly or every other week, videos like this or other things that I’ve found interesting and (some) analysis. So you can go and get a flavor of what I’ve been talking about for the last couple of years.
I am taking new clients I would love it if you gave me a call or passed this video along to someone who might be interested in a comprehensive wealth management firm, Generosity Wealth Management, that’s me. You have a wonderful week, we’ll talk to you later, bye, bye.
Statistically speaking, when 2 or more things move together (both zig at the same time instead of some of them zagging) it’s called a correlation of 1.0. Over the past 30 years the correlation of the global markets have continued to increase towards 1.
This means that it’s a high probability that as Europe falls, it will impact our US markets. How much is the question, but our fates seem to be intertwined.
* There are some BEAR signs in the market I’m concerned about
* What does the market really care about (hint: recession and Europe)
* Why so much volatility last week?
* What should you (or me if I’m your adviser) be doing?
* Dynamic Asset Allocation management coming your way….
If this week is calmer than last week, then I may not do a video 2 or 3 times. For all our sakes, let’s hope that’s the case!
TRANSCRIPT:
Hi there, Mike Brady with Generosity Wealth Management,
and recording this on a Monday morning, August 15th, and hopefully
you are getting this in your e-mail on Monday afternoon. With every day being
so very important and news-worthy, I want to get this out as quickly as
possible.
Last week, I mean big swings; 400 plus or minus and just
unbelievable. The volatility on Friday and so far today is starting to tamper
down: which is great. I think that anyone who believes in efficient market
theory is,,,, I’m just not there. I’m not on the bandwagon with them. That
really says that the available public information is factored into the market.
And when you are seeing huge swings like that I think you’re seeing a lot of
emotionality. You’re also seeing a lot of short covering and you’re also seeing
some programmed trading- people who have got losses in there or various
triggers at various points; just starting to execute automatically. I make no
judgments about any of those techniques or reasons, it’s just; they are what
they are.
Right now, I think what we need to ask ourselves and what
the market is asking itself is; are we in a recession? And; is the Euro going
to survive? Because Europe and the Euro is going to be a big driver going
forward in the next quarter or two. I think we’re seeing a year and a half of,
if you’ve been watching my videos, it’s starting to implode. And so it’s
starting to slow up,… sorry, it’s starting to speed up and some major decisions
are being made at this point in time.
Are we in a recession? I think we are in a recession. We’re
going to look back three to six months from now and say, “gosh, we were in a
recession then.” Even if the numbers don’t say so right now.
There are some bearish indications that have me
concerned. One of them is four months of down months. If August is a down month
in the market, that is definitely a clear sign that we are in a recession.
Sorry, I’m just looking at my notes here.
Second is just the market volatility- you don’t see this
kind of volatility in a bull market. You see this kind of stuff in a bear
market.
Third is just the sentiment of the investors. It is
really quite negative. That’s also a bear signal.
Fourth is the Fed. At the end of the day when you look in
between the lines of what the Fed is saying, the Fed is saying that we’re in a
recession by the tones that, and overtures that they’re giving.
There are a couple of things that I think you need to do.
Kind of getting back to some practicality here; look at your portfolio and
rebalance. You probably have various mutual funds, ETF’s, stocks, ect. And make
sure that you’re not completely out of whack. If you used to be ten per cent
this and now you’re fifteen or twenty and you really don’t want that. Now is
the time to evaluate it.
The second is, for your particular categories, let’s say
that you want a certain per cent in large cap or small cap or internationals or
whatever it might be, make sure you’ve got the best in class. When’s the last
time you reviewed the particular mutual fund, ETF, index, etc., to insure that
it is performing the way that you think it should perform.
In the last couple of years we’ve had, mainly, kind of a
nice bull market and so it’s… now we’ve had a couple of weeks of down, and so the
question is: did it perform the way it is supposed to? So is there any change
within that category that you need to make.
I still believe that internationals are something that
you ought to have a very small, if any, position in. I do have some
international exposure but it is extremely small. And, because, getting back to
what I said earlier, I think that is going to be one of the major drivers going
forward.
The last thing you can do is look at your municipals. I
have a friend of mine, and we spoke last week and he, I think, pretty much
thinks I’m crazy in some of my pessimisms with municipals. That’s OK. At the
end of the day I could be completely wrong and municipals could do fine going forward
and maybe even have a little rally, that’s fine. But the question is, I think, the
risk is too great out there- I mean your down-side versus your upside? With the
yield between one and four per cent for these municipals, sorry that is just
not very exciting to me for the risk that you’re going to take. And I think the
risk on the downside, if we have some defaults, is just greater than what the
upside potential is. That’s just my analysis, I could be completely wrong as it
relates to municipals but it is just the risk reward ratio is not there for me.
That is what I’m thinking about right now. One thing that
I’m going to let you know is, I’ve been working very hard for a number of
months now on some dynamic asset allocation models. I’ll be talking about that
more individually with my clients, and also writing about it in my newsletter,
etc. It is just another investment management strategy that I want to
compliment some of the other things that I’m doing with my clients and
offerings for prospective clients. So I’ll be talking about that in the coming
weeks.
Also, if you don’t get another video from me this week-
this is a good thing! Not that you don’t hear from me or that I don’t have to
do another video. It just means that maybe things have settled down a little bit.
You don’t have to say, every single day, “Oh my gosh! What’s
going on? What does this actually mean? What does this mean for me over at
Generosity Wealth management?” So if you don’t get a video from me maybe it
means, whooo, maybe things have settled down a bit. We’re not quite on the
ledge that we were a couple of weeks ago.
Anyway, Mike Brady. Generosity Wealth Management, 303.747.6455.
And you have a wonderful day and maybe a wonderful week. Bye bye now.
