I’m a big fan of Warren Buffett (as many of you know) as I admire his intellect, drive, and humility. There’s a reason he’s in the top 5 richest in the world.
Warren Buffett has a chart that he’s described as his favorite. It’s the total valuation of the stock market versus the Gross National Product of the US.
What is it telling us now? A = Stocks are modestly expensive.
Should you sell everything to cash? A = No. It does, however, tell us to be very cautious going forward and watch the percentage we have allocated to the equity markets.
Do you know what the percentage of your portfolio is exposed? If not, please contact me and I’ll do what I can to help you out.
Oh, and in case you’re curious or a compliance officer, the Shanghai Composite Index is an index of all stocks (A and B Shares) that are traded at the Shanghai Stock Exchange. It is merely being used as a proxy for the stock makret and cannot be invested in directly.
The stock markets have been making some headlines recently. Last Friday, the DOW declined below 12,000.
Should you freak out? Is this the beginning of the end?
I also address whether I feel the gold rally will continue. Does it make sense to be a part of your portfolio?
TRANSCRIPT:
Hi Clients and Friends, Mike Brady here.
Just a quick video just to let you know what I’m thinking about this week. And this week I’m thinking about, sort of, the news headlines about the kind of, the steady erosion in the Dow and the stock markets, the equity markets, over the last week and a half to two weeks. The momentum has certainly slowed, but is this something you should freak out about, and completely sell all your stocks, and this is the beginning of the end? I don’t believe so. An official correction in the market is when you hit ten percent, and we have not hit that.
As of the recording of this video it’s down about six and a half percent from its high. And you have to ask yourself if this is, you know, completely impacting your portfolio, maybe you have too much in equities and stocks. So this is a good time to evaluate whether or not you are getting the full force of that, the extent of that decline. And if so, then you probably have too much in your in your, too much equities in your portfolio.
I do believe that diversification is a very key ingredient. The last couple of years we’ve had a pretty strong, upwardly mobile market with a couple of declines here and there; and most notably last summer in July. But pretty much it’s been up, up, up. And so something like this makes great news headlines.
I’ve been asked in the past if I think that gold is a good compliment to your portfolio- and the answer is yes. Gold has had a huge rally over the last few years. And one of the reasons why, there’s three reasons why I think it’s going to continue to be attractive and a nice hedge, a nice part (a relatively small part) but a part of your portfolio.
Number one is I think low real interest rates world-wide still make it attractive. I mean, real interest rate means what you are getting after inflation. So if your rate of return is five percent and inflation is four, then your real rate of return is the difference which is one percent.
The second reason why gold is going to be attractive is some fiscal concerns, highlighted in you know, continued fiscal deficits. And so, I think this is something that is a real concern and what makes gold a little bit more attractive.
The third thing is just emerging market economics. It becomes, as emerging markets world-wide, globally, people…, it becomes commodity driven, and people in those areas do want some gold and some inflationary…some protection against inflationary pressures.
I think of, whenever you’re looking at which asset class to go towards, whether or not it’s stocks or bonds or gold, or whatever it might be; it’s like a beauty contest. It’s not always what you think is the most beautiful but you have to think about what everyone else thinks is the most beautiful. And I do think that gold is something that everyone finds very attractive. And so we always have to evaluate do they still think it’s attractive? And we have to be smarter than them about that.
It’s the same way with the momentum of the equity markets, the bond markets, whatever it might be. And so, I think that this summer it is going to be choppy as it relates to the equity and the stock markets. We’ll continue to evaluate that. Do people, getting back to my analogy of the beauty contest, do people still think that it’s attractive? But I think, you know, some of the profitability of the underlying balance sheets of corporations etc., make it attractive to me, and I have to continue to watch to make sure that it’s attractive for other people, to other people, if they are seeing it the same way that I’m seeing it.
So anyway, that’s, those are my thoughts. That’s it for this week. My name is Mike Brady, my company is Generosity Wealth Management. I am a, kind of a holistic comprehensive approach with clients, with their financial well-being. Give me a call, 303.747.6455. I am a registered representative with Cambridge Investment Research. You have a wonderful week and I’ll talk to you next week. Bye bye now.
John Paulson, a smart, rich, and successful hedge fund manager, has some pretty good words about “Risk” in a paper he recently published.
Put simply, you have to understand what the Risk is before you come up with bumper sticker phases like “if you watch the downside the upside takes care of itself”.
This week’s video is my 1st Quarter Review and my 2nd Quarter Preview.
The first quarter was good (yeah!), and I list the items I’ll be watching and thinking about for the 2nd quarter.
A must see video (if I do say so myself).
TRANSCRIPT:
Hi Clients and Friends, Mike Brady here. This is the first quarter review and second quarter pre-view for 2011.
Now, in general, the first quarter was a little bouncy in February, but overall a positive quarter; actually, a very strong and nice quarter. The indexes, which of course you can’t invest in indexes, but they’re something that you see in newspapers and TV, etc., that we refer to all the time, the stock market indexes in general were all positive sort of in the middle numbers, four, five, six, something like that. The big winner was the sector that is small cap around nine or ten percent for the first quarter, depending on which slice you look at. Corporate bonds were positive for the year, for the first quarter I should say. And that is good for them, two to three percent. Government bonds were pretty flat either zero or actually negative, between zero and one percent, once again depending on which slice and what duration you want to look at.
So for this second quarter, what’s going to happen? Oh, boy, that’s always a tricky one. We have to look at it, I think, week and month by month. Some of the things I will be paying attention to will be quantitative easing, ending in June. Quantitative easing, (QE2 is what we call it) has been an influx of capital into the markets and that is going to end in June. Also Bernanke is going to give his first ever press conference at the end of April and boy, I think if you’ve been watching my videos and reading my newsletters you know I’m not a big fan of Ben Bernanke, so I’m kind of curious what he’s going to say and well you know kind of what the reaction is to him.
I’m going to continue to watch for the real numbers. I’m becoming more and more of a proponent that what you read and what gets put out there is not really telling the full story. A great example would be unemployment. The unemployment rate is 8.8 percent right now which is supposed to be good news. But the U6, which is the unemployment number including people who have given up looking, is quite high, sixteen or seventeen percent. So, I’m going to continue to look at what the real numbers are, telling us the real data. Just one more example while I’m thinking of it is inflation. Inflation, the CPI, does not include food and oil, as if we don’t drive or eat. I mean that’s a goofy number. So what are the true numbers so that we can understand what the recovery is saying.
I’m going to continue to watch oil. Oil has really increased in the last three or four months or so. And as I mentioned at the beginning of the year oil can be a real sidetrack, a good de-railer for the economy if it increases. And it has increased quite a lot since the beginning of the year. I don’t have the number right in front of me but as I recall it was around $88, and now it is right around $113, or $114. So it has started to increase and that is of concern to me.
These are some of the things that I’m going to really watch very closely this second quarter. And of course, I encourage you to give me a call as we go through the quarter if there are any concerns or questions you might have about the impact of this or that on the markets and on your portfolio, etc.
My name is Mike Brady. My company is Generosity Wealth Management, The phone number is 303.747.6455. I am a registered representative with Cambridge Investment Research. And we’ll talk to you next week. Thank you bye bye.
