Founder & Chairman
I’m not sure which is more difficult, staying ahead of this market or raising teenage girls…lucky for me I get to do both. I will share some insight on the topic that I seem to have a better handle on. Summer is quickly approaching and we find ourselves awaiting the flowers of May, both literally and figuratively. While the weather in May has been decent, returns for equities have been anything but. We have discussed for years the concept of “stay away in May”, and to us, it’s looking like 2012 is going to be another good year to enjoy a summer vacation away from stocks.
A close look at the domestic economic data reveals a slowing U.S. economy. That doesn’t necessarily mean a screeching halt, but rather the numbers have been decelerating much like the Tiger’s baseball bats lately. Initial unemployment claims have been up, GDP has been falling, and corporate profits while still pretty decent have also started to come down a bit coupled with lower future expectations for the remainder of 2012. Consumer Metrics has pointed out that even the most recent GDP number, as uninspiring as it was, was probably overstated due to seasonal adjustments (government funny math) and is likely to continue to disappoint.
Turning to our European counterparts, the last week was an incredible turning point for the political and economic direction of the Euro. Not only did the French and Greeks elect leaders that lean much more the socialist/communist path of government, but the recent austerity measures that were so difficult to win have essentially been jettisoned. It appears very likely now that Greece won’t be able to stay in the Euro-zone, and the future of the area is uncertain at best. More uncertainty as summer approaches.
The list of other concerns could run on and on, but we would be foolish if we didn’t acknowledge the potentially bullish wildcard. The fact is, there is a group of overzealous central bankers that stand ready to jump in and save the day at any moment. Ben Bernanke and company (his European and Asian counterparts) have come to the aid of ailing markets time and time again. It is quite likely that should things get really ugly (a distinct possibility) they will concoct some new-fangled approach to stabilize the markets for a time. We are well aware of this possibility, and will obviously make adjustments to our portfolio management should the opportunity arise. While we think we could be in for a bumpy ride, we don’t think that the markets are headed for a historic collapse, at least not yet anyway. We anticipate that the markets will present us with a better buying opportunity over the next few months, and we would certainly welcome that.
So here’s the deal. We have made changes to the portfolios. All of the changes will appear in the client section of our website. There are simply too many different portfolios now to list in this update. To save you some time I will summarize what we are trying to accomplish in general terms. We have reduced our equity holdings to exclusively large company, dividend paying stocks. We have reduced the overall equity exposure significantly. To reiterate, we believe that 2012 is looking a lot like 2011, and avoiding the market (or at least most of it) will be a prudent approach. It’s hard to believe that interest rates could get much lower, but as the market has fallen, that is exactly what has happened. As long as the economic situation remains cloudy, it is very likely in our view that interest rates (particularly for U.S. Treasuries and high quality corporate bonds) will remain low and amazingly could go lower. It continues to look like the U.S. is the world’s safe haven investment shelter, and if that is the case then our bonds will attract capital. Our models now reflect this line of thinking, and will continue to do so until we see a change in the outlook or the Fed steps up and takes action.
Like raising teenagers, managing portfolios in this environment is no picnic, but like raising teenagers it can be very rewarding. This is not a time to be taking big risks, and the goal is to get through this period in one piece and be in position to reap the rewards of discipline and hard work. Bear markets are not the time to amass wealth, generally speaking. Surviving bear markets with your portfolio in tact, will give you the seed money to reap the benefits of the next bull. The biggest problem most investors face during bear markets is the sad reality that they just don’t have that much money left to rise with the eventual bull because they either sold too late, or didn’t sell at all. In the end, you have to do a little soul searching and ask yourself what is the REAL goal. If the real goal is a healthy quality of life, low anxiety and financial freedom, then being conservative is probably the most prudent path. If the goal is more ego-driven, having to “beat the market” (the fact that the word beat is in that sentence should alone tell you all you need to know about how much ego is involved) then sadly you could expose your family to some seriously unintended consequences. Experience is what you get when you don’t get what you want. Just ask my daughters.
If you have signed forms giving us permission to make the changes to your account, congratulations, we have already made them and you are on your way to a nice relaxing summer. For those of you who have not, it’s time to get with the program. We now have the technology and infrastructure to make automatic changes to your accounts without having to wait for you to respond via email or telephone. Automatic changes cuts down the lag-time considerably and reduces the probability of things falling through the cracks. If you want us to do the best job we can, please sign the forms to provide us with that ability. If you haven’t been presented with this opportunity yet, please call Melissa at our office and she will be very happy to assist you.
Lastly, we have been doing extensive research on the subject of how to prepare for possible long-term care expenses and the impact they could have on your family’s finances. We are happy to report that, to our pleasant surprise, there have been some interesting advances in the insurance industry. There a number of innovative new strategies that can provide money to pay for long-term care costs, without having to buy a single-purpose long term care policy that is expensive and one which you, more than likely, will never benefit from. If this is an area that you would like to discuss, we are well educated and prepared to share with you a number of options that can truly protect you from the most likely cause of financial hardship you will face. Please call Melissa or Krystal at the office and they would be delighted to set up a meeting to address this very important issue.
Visit www.sawchukwealth.com to review past issues of The Marketview.
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