Good morning. Mike Brady with Generosity Wealth Management, a comprehensive full service wealth management firm here in Boulder, Colorado, and I am so pleased to talk with you this morning because we’re going to talk a little bit about the first quarter of 2013. We’re going to talk about the rest of the year. We’re also going to talk about unintended consequences, and I’ll talk about what I mean by unintended consequences in just a little bit.
First quarter of 2013, very good quarter, particularly if you’re 100% invested in the S&P 500 (which you probably shouldn’t be), and very disappointing for you if you’re 100% invested in wheat futures (which you probably shouldn’t be). Realistically you hopefully have a well diversified portfolio of stocks and bonds and cash in US and international, something that fits well with you with your risk tolerance level. If you’re my client, of course I’ve talked with you about that. If you’re not my client, well gosh darnit, you should call me so I can work with you on that.
I’m going to put up on the chart there something that might be a little difficult so I’m going to put a link to it so you can grab the high definition JPEG of it, but you’re going to see across the gamut there, from on the left you’re going to see the S&P 500 all the way to the wheat futures there on the right, all kinds of ranges from – from very good double digits in the positive to for the unmanaged stock impact indexes to double digit negatives for those – those evil wheat futures.
I’m always reminded that like predicting the weather, predicting the economy and predicting the markets, et cetera, is a very complicated proposal. No one is absolutely right, and there’s many different variables that go into it. The older I get, the more humble I become, and at the beginning of the year I said that I thought that this was going to be an up and down couple of years, that it’s going to be a trading range, and I was asked by a client last week if I was surprised by the first quarter strength and the answer is I was surprised but one quarter does not a year make. One quarter does not a two-year time frame make, and I hold to that.
I think that going forward there are so many pieces of data that are negative, there are so many pieces of data that are positive, and that’s normal. When someone says to you, if you see some kind of a TV pundit or an analyst that, well, all these, we have conflicting data. Well, there’s always conflicting data. There’s never 100% way or the other. We have to become comfortable with that type of chaos, and we I think have to take all the data in and say, okay, what does it really mean? And for me it means that it’s going to continue to be that muddle through.
One thing that does concern me from an economy point of view is it feels like a very sluggish economy. The participation rate from an employee point of view, I’m going to throw a chart up there, continues to discourage employees. That being said, I don’t take the complete pessimist view, because we knew this going back that there’s going to be so many baby boomers exiting the work force, so we knew this. Remember that book back in the early 2000s, The Roaring 2000s by Harry Dent, he talked about how around this time frame there are going to be a lot of people exiting the work force and starting to withdraw money from the market. That being said, I think that if you talk with some of your friends and family members, you probably know people who have tried to get a full time job that have decided to go back to school or decided to take something that is less than full employment or what they’re looking for, so it’s a combination of those two, and at various points in time we have a major shift change, and I think that we’re going through that right now and have been for the last two, three, four years, of what does it really mean to be fully employed? What skill levels are we as a society needing in some of those high tech and creative positions? And so that’s what we’re seeing right now. It’s always painful when we go through it, but I’m ultimately an optimist on the US and how we solve things and our ability to weather many things.
Now, I want to talk about unintended consequences. The unintended consequence from August of 2011, remember what we were talking at that point about the down grade of the US from triple A down to double A, and everyone said oh, my gosh, no one’s going to want our treasuries. Well, the exact opposite happened and people basically looked at, investors looked at all of their options and said, you know, this can have a huge impact on some of these other asset classes. I actually want the treasuries which look the best horse in the glue factory, and so that’s exactly what happened. There was a huge rally in the treasuries. I think about, and this is a slight tangent, but I think about Kenya about four or five years ago. I think many of you know that I go to East Africa for two to three weeks a year and do some charity work there, and in Kenya they had a riot after one of the elections and it cut off the whole, you know, Rwanda and Uganda from the ability to get fuel and to get other goods and services because they were coming through Kenya. Well, what was the unintended consequence of that? Now there’s a huge pipeline and rail that’s going through Tanzania that completely bypassed – they’re going to completely bypass and have as a secondary something that’s not Kenyan. That’s really going to long term hurt Kenya, who had a monopoly on getting goods and services in there.
The reason why I bring that up is let’s look at what happened with Cyprus and the European monetary union. Essentially the Cyprus banks decided to treat their depositors as investors in the bank, saying, well we’ve lost all this other money, we can’t – we’re having real difficulty, and the European monetary – European Union is basically saying well, you got us tickets to those uninsured depositors. Now, if you were a depositor of a large amount, you think that’s not going to cause some concern down the road? I mean, I think this is probably the end of the Cyprus banks there, and it also had an unintended consequence of everyone else who is looking at the investing, not investing but depositing banks and European banks is that the European Union said, you know what? This country, the next time Italy comes around, the next time Portugal or Spain comes around, or Ireland, you know, you’re on your own. It’s up to the country. We’re not unified as a European monetary union, unlike what we have here in the United States.
So I think that the unintended consequence of that is a further segregation of the banking system and financial system in Europe that’s just going to speed along what we’ve been talking about for two to three years. Whether all that money that was part there now comes towards the US banks is still to be seen. That being said, I actually think the US financial system is still sick, I mean there seemed to be no consequences for bad action and bad investments even here in the United States, and this is something that we’re going to have to pay at some point as a society and as tax payers, and I don’t know when that’s going to be, whether it’s one quarter, two quarters, two years, or within ten years, but that is something that is going to have to be addressed at some point.
What does this mean for 2013/2014? I continue to believe in the trading range and that we need to be prepared for some up and down movement in the next year and a half, year to year and a half to two years. If you’re my client, of course I’ve talked with you about it. I met with pretty much all the clients in the first quarter and I tried to recommend managers and third party managers that I believe do well in that type of market.
I’m going to put up there on the chart a long term 110-year, 113-year view of the market, and the longer the time horizon that you have as an investor, the happier you’re going to be. If you’re a minute by minute, if you’re an hour, a day, a week, a month, those are hugely short times frames, and what we want to do is have investments that do well on the yearly, the two, the five, and the ten-year time horizon, and if we can have decade time horizon, you’re going to be a very happy, happy camper.
Before I end here, I’m going to throw a couple more charts up to show you what Europe looked like in the first quarter. You’re going to see that Europe was definitely trailing the S&P 500. You’re going to see that the financials trailed all the European stock market indexes, the unmanaged stock market indexes even more, and going forward I think that we need to be prepared for some volatility. We have to remain diversified, and we have to remain consistent with the risk level that we need for the plan that you hopefully have in place. The reason why I say the plan that you hopefully have in place is you’ve got to know where you’re going, you’ve got to have that nice retirement analysis and plan, and what risk level do you need? Because if you only need 2 to 3% a year and you’re taking risks that can get you 10 or 12% in a good year but also lose it in another, why are you taking all of that risk? And so I think that that’s something that you need to keep in mind.
I’m going to wrap up now, because it feels like I’ve been talking for awhile. I’m going to be a little bit more consistent with my videos going forward because gosh darnit, this first quarter was so busy for me as I was meeting with my existing clients and meeting with new people, that I didn’t have – I felt like I was communicating one on one all the time but I wasn’t doing as good of a job with my newsletters and my videos, and I’m going to get back to that, so you’ll see an awful lot going forward.
I am taking new clients. I would love for you to give my name out to your friends and colleagues and family members, et cetera, have them give me a call. We’ll have a conversation whether or not it makes sense for us to sit down and whether I’m the right guy to help them out. What people want, I can’t help everyone, so what they might need might not be what I do, and I’ll be very blunt about that and then very timely of course, but I’ll try to point them in the right direction.
Mike Brady, Generosity Wealth Management, 303-747-6455. You have a wonderful week, wonderful quarter. Thanks, good-bye.
Sorry in advance for a longer than usual video this month (7.5 minutes), but I have some charts and graphs in there to provide some context for the slow ride down in the un-managed stock market indexes that we saw for May.
The question we always have to ask ourselves is “what is this telling us?” and “what does this mean for the future?”.
Click to watch my video.
Good morning, Mike Brady with Generosity Wealth Management speaking to you from Boulder, Colorado. And today I want to talk about what’s been going on in the markets; what’s happening in Europe, how that’s affecting things in the United States; kind of the United States by itself. But really, kind of what’s happened in the markets in the last month or so. I mean the unmanaged stock indexes in the last month or so are down about ten per cent and this is the third time in twelve months that we’ve seen within the space of a month a ten per cent decline, or so.
One thing that makes this May different is that it was a kind of slow steady decline versus lots of volatility. I mean if we look back to just last summer, remember when there were four and five and six hundred point swings on a daily basis. We just didn’t have that this past May.
Unfortunately, the last month has wiped out some of the gains that we had accumulated in the first quarter of this year. Just to provide some context the markets are actually still positive for the year, the unmanaged stock market indexes. So, the question you might ask yourself is, OK, we’ve had low volatility in May, it’s been a decline in the month. The optimist in you might say, well, the market is reading this, the market has actually done quite well over the last three or four years since March of ’09, and this is just kind of a step back, and it’s reading the market and it’s not freaking out. The pessimist in you might look at Europe and all the bad news there, how is that summer of discontent going to affect the global markets, the U.S. markets and what’s going to happen with the European Monetary Union, our continued bad job markets throughout the summer leading up in to the election etcetera? And say, “Wow, this is just the beginning. I’m looking at a big crevice before us, I’m looking at the abyss and I certainly don’t like it and I feel uncomfortable with it.”
One of the reasons we have long term diversified strategies, and hopefully you have one, is because that’s an investment, a conscious investment, in the future, saying that “I’m going to take three steps forward and one step back.” Maybe five steps forward and three steps back, however it is. But over the … why would you invest in something if you believe that long term that it’s not going to be greater in the future than it is now? Now I could sit here and show all kinds of studies which show that having exposure, having a well-diversified portfolio, is in the investor’s best interest as you’re reaching your retirement goals or as you’re in retirement, maintaining your principal and some income going forward.
But as we look at that, I’m going to throw up a chart here, on the screen and what you’ll see is intra-year declines are something that have always happened. And it’s not uncommon for there to be double digit returns. I’m going to circle a couple of them up on the screen. But what you’ll see is that does not mean that the year ends negative. So don’t write off this whole year just because it’s June and the markets, although they’re only slightly positive they’re not double digits or maybe what you would like. And so there’s more than fifty per cent of the year before us even though May has not been very favorable.
I happen to be a contrarian at heart and one thing that…, I’m going to throw a chart up here, is the equity allocation, the recommended equity allocation when it’s very high percentage, you’ll notice that it is kind of market tops, there at about 2000. A lot of times when people do not want to have an equity allocation, like March of ’09, is exactly when you want to do it. Let’s keep it in perspective that since March of ’09, the market, as of last quarter was up well over 100 per cent in an unmanaged stock market index.
One thing that you want to consider as well is having a very well diversified portfolio, including bonds both government and corporate. They have a tendency to reduce your volatility, of an individual portfolio. That’s why you have an asset allocation. That’s why you have a diversification. But you make various “tilts”, I might say, throughout the year. And that’s what I do on my clients’ behalf.
So, let me summarize here real quickly; the market in May has been very difficult. The question we have to ask ourselves is, “what does that lead us, what conclusion does that lead us through the summer and through the rest of the year?”
I stand by my conviction, which I gave at the beginning of the year, this is going to be a positive year. And the reason why I do that, even with all the negative information out there, OK, I hear it OK? And I certainly hope I don’t give off the impression that I’m stubborn. It’s like, “No, no, Mike won’t… data’s changing and he’s not changing.” Which at my last video I said, “Hey, I’m really concerned about things going forward.” And I think I was right in the last two or three weeks or so that there has been a weakening. But the reason why I am optimistic is still because of the strength, as I see it, in our companies that have fortified themselves against very uncertain times and some bad information going forward, OK?
If I am wrong, that’s why we remain diversified. And that’s why we keep our eye on the long term goal and have diversification, OK? You’ve got to have a good portfolio. But that being said, I don’t think I’m wrong. Why would I say something if I thought I was wrong? But I also have to have the humility, and every investor needs to have the humility, and you don’t bet all on one particular thing.
So, I am still optimistic for the year. I’m not changing my allocations in general at this point. I am not freaked out as in; the world is going to end this particular summer. I do believe the volatility is going to continue to be greater now than it was in the first quarter of this year. But I don’t believe, as I see it, as I do my analysis, that we’re going to see the kind of volatility that we saw last August.
There is a lot of data that’s going to come out this summer. Europe is still going to be the big news and so we have to watch that but we also have to keep it [take it] with a grain of salt; about how that’s going to affect us.
One thing that I continue to be concerned about is the coupling of Europe, the disappointing news out of Europe, and the disappointing economic, kind of macro-economic news out of the United States. I think that that’s a real disturbing trend. And of course, I continue to watch China as their numbers have faltered as well.
That being said, I’m holding true right now with the allocations that I have for my clients. If you need assistance, if you want a second opinion, I’m happy to give that to you. I certainly hope that you have a plan as well, that’s a multiple year plan about how to reach your goals and kind of live, reach your goals. Live within retirement at the lifestyle which you would like.
Anyway, Mike Brady, Generosity Wealth Management. Sorry this video’s been a little bit longer but hopefully I’ve given some good data in there as well and some good thoughts for you. Give me a call if you have any questions, 303.747.6455, and we’ll talk to you later, thanks, bye bye.
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.
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.