There are few things the stock and bond markets hate more than uncertainty. Currently, part of that uncertainty is the unraveling of the European Monetary Union and the impact that will have on us here in the United States.
Since the beginning of the year (see January and April videos in particular) I have been optimistic, but I have to say my enthusiasm for this market is waning. The summer months, historically difficult in themselves, have me concerned with lower GDP numbers, continued unemployment leading to the election, but most importantly concerns about the debt problem in Europe and domestically.
I’m adjusting my portfolios accordingly.
Click to watch my video.
TRANSCRIPT:
Good morning, Mike Brady with Generosity Wealth Management speaking to you from my offices in here Boulder, Colorado. And I’m recording this on a Friday evening, originally I had a couple of topics I wanted to talk to you about but so much has been in the news recently about consistently down days in the market; J.P. Morgan Chase losing two billion dollars on their propriety trading desk; Europe, France just had an election. Then I wanted to share with you my analysis, kind of my thoughts about that because up till now I’ve been optimistic and data changes, it’s not that I’m not optimistic. As a matter of fact I’m still feeling very good about getting rid of that uncertainty of the presidential election one way or the other. But this summer some more uncertainty has been introduced, I think, to the system, to the world, to our analysis that causes me to really look at things very closely. And this is what I’ve been doing in the last week or so, and will be continuing in the near future.
One of the reasons why I was optimistic is increasing profit margins in our businesses, kind of corporate America. Their very large cash balance sheets ready to deploy when they feel there will be less uncertainty. Because they will deploy in research and development and new staff and new infrastructure but they’ve got to have some kind of confidence that will come back to them in a rate of return. Completely reasonable.
But right now Europe really is becoming a sore spot and that has me concerned as we’re going into the uncertain months of summer. Spain, just to give a little bit of perspective; it’s the fourth largest economy in Europe and the twelfth largest in the world. It currently has twenty-four percent unemployment, and among Spanish youth over fifty percent unemployment. How is this really going to affect Europe? And how is Europe really going to renegotiate some of the arrangements of the European Monetary Union, etc., in the coming months? I don’t know. I don’t know any more than you do but what I will say is I’m reading this stuff and I’m analyzing it very closely and I’m coming to some conclusions that—the uncertainty has me concerned. So I’m decreasing my percentages in the international in general and it’s something I’m watching very, very closely. And I’ll continue to report to you how I’m thinking.
Just to put some perspective on where the markets have been, I’m going to throw up on the screen there (a chart) the Dow Jones for about the last twelve months. And what you’ll see is that although the last four to six weeks have been down and volatile and increased volatility etc. In a long term diversified portfolio, having that strategy- you’re still positive for the year in an unmanaged index.
It’s good to have that because these things that are happening right now, most recently, are always going to happen. The market is cyclical and we can’t get too concerned, too freaked out when it does happen but what we can do is reassess with new data coming in—where should we go? And where should we be, where should we tilt, one way or the other as we’re going forward?
Anyway, if you’re my client you know I talk to you all the time. Of course I want to hear from you if you have any questions or concerns after my video here today. If you’re not my client, if you want a second opinion on what you’re doing I’d be happy to do that. It would be my pleasure.
Mike Brady, Generosity Wealth Management, 303-747-6455, you have a wonderful week. Thanks! Bye, bye.
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.
* 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.
You’ve been reading my newsletters and saying “boy, that Mike Brady knows everything”. That may be true, but it’s good to remember the markets have a mind of their own.
The Euro has rallied against other currencies recently.
Do I think this is a short term rally? Yes. Do I think the Euro and Europe in general still have long term problems? Yes.
