Monthly Archives: August 2015

Stock Market Volatility Investing

The Economy: The hum-drum economic numbers have been overshadowed by the roar of the mighty bear who woke, from years of hibernation, with an insatiable appetite for the nattering nabobs of complacency. During the Dot Com Era, we marveled at vaporware, eyeballs and non-existent public companies with triple-digit stock handles. During the prelude to the Financial Crisis we were amazed at the fixed income garbage that entranced investors. Recently we’ve been concerned as US financial markets moved relentlessly upward on anemic global economic numbers. Talking heads are too giddy reading their tele-prompters. Bloggers and reporters are compromised by their own agendas. If the rest of the planet is in economic distress, with China, commodities, currencies and oil in turmoil, is it prudent to assume the gravy train will go on forever? The U.S. may be the Big Dog, but are we immune from a global flu when 48% of revenue for S&P 500 companies comes from overseas? In the past week, the Fed seems to be backing away from September Liftoff. No Liftoff is confirmation that things aren’t up to par … and as we’ve mentioned before, if it doesn’t happen in September, then it looks to be March 2016.

Food for Thought: “The Market giveth and The Market taketh away.” After being in the tightest trading range since 1927, stocks decidedly broke to the downside in the past week. Before today, major indices were down 12% for the month of August … quite a jump from complacency to panic. … then right on cue … voila!! … Janet and her Boys were doing their Hail Mary shtick to talk the markets up. Fed Presidents Lockhart and Dudley made the usual “do whatever it takes” stump speeches. So markets closed up 4% today and talking heads are saying buy the dip. Of course they don’t have skin in the game. As they say in the Democratic Republic of Texas, “All hat and no cattle!” Be cautious in these volatile times. The mainstream media presents investing as entertainment. A better approach might be reading “The Battle for Stock Market Profits.” Remember, September is the worst month of the year for stocks and the low of the year is usually in October. Contact us if you have questions. If your self-directed 401k is stagnant or confusing, we can assist you. If someone you know needs help in these challenging times, please pass this email along to them. At Higgins Capital We Quarterback Money®.

Stock Market Bears Done Hibernating

US stock markets fell of the cliff today. The Dow at one point was down over 1000 points; a record. The NASDAQ was down over 400 points shortly after the open. The indices recovered about half of their losses by the close. The Dow is down a record 1500 points in the past 3-days. The Dow and the S&P are down 9% in that time. The NASDAQ is down 10% in the past 3-days. Many well-known names were down as much as 21% before recovering slightly. The major indices closed down about 4% on the day. After 4-years, we are finally in a stock market correction. Corrections typically see a 10-15% selloff and last 2-3 months. However, this selloff has occurred so quickly, that the usual 2-3 month timeframe may be compressed. We’ve had two back-to-back 500 point down days on the Dow. With this kind of plunge, the momentum is still to the downside. So we expect opportunity to become more attractive. One of the consequences of this volatility is that the Fed probably won’t raise interest rates until March of 2016. The odds of a September Liftoff have dramatically decreased as global stock markets have cratered and left overseas in disarray. As we’ve said before, “There’s opportunity in chaos.” You have my email. If you have any questions or concerns please contact me anytime. My cellphone is (858) 204-4268. If your friends or family have questions, please pass my phone number along or have them email me. At Higgins Capital we have the unique ability to help you manage your 401k. If you, your friends or family would like to know how we can help you in these trying times, please contact me. We Quarterback Money®.

Stocks Dive

For months we have been advising investors to take profits and raise cash. You should now be in the position to benefit from last week’s carnage. Long term investors should use the cash you have raised to buy quality stocks that have sold off. After last Friday, the Talking Heads are screaming, “Dive, Dive, Dive!!” The week before, they were screaming that the markets would go up forever. Ignore them. They are like yapping dogs. After 6-years of a bull market and 4-years without a 10% correction, the pain of a pullback can be acute and disorienting. This is the time to be proactive with a plan. You should be hearing from your advisor and your advisor should have specific recommendations for you. Contact us for help in these trying  times. At Higgins Capital We Quarterback Money® and We Shop The Street® for our clients.

Stock Market Sell-off

The Economy: …ZZZZZZZZZZ…Dog Daze of August. The Fed Minutes were released today …ZZZZZZZZZZ… Nothing new; nothing surprising; nothing worthy of even the most banal cocktail chatter. But there are still blowhards on both sides of the September Liftoff argument. You know it’s coming no matter how much Janet and the Boys dissemble. The consensus is that when it does occur, it’ll be low and slow. The great unknown are the unintended consequences. This will be the first increase since 2006. A lot has changed in the past decade. But despite the gloom and doom from some quarters, life will go on. The change, when it comes will provide tremendous opportunity for those equipped to ride the wave.

Food for Thought: This year stocks have traded in the tightest range since 1927. Both the Dow and the S&P 500 are in negative territory for the year. Don’t fight the tape and don’t fight the Fed have become the rallying cry for the perma-bulls. The challenge is to force yourself to keep an open mind; to make no assumptions about the direction of the stock market or interest rates. Stocks could crater after the first hike, in fear of a slowing economy. Or they could rocket higher in ecstasy that the Fed is confident in the underlying economic strength. The complacency that markets will move higher is indicative of an aging bull. But the unbridled euphoria that marks a top is missing. And while we haven’t seen a correction in 4-years, all of the indices are down from their highs of late last year: The Dow is down 4.81%; the S&P down 2.4%; the NASDAQ down 3.83%, the Russell down 7.16%; the Dow Transports down 9.24% and the Semiconductor Index down 17.12%.

Remembering Napoleon Bonaparte

Today is Napoleon Bonaparte’s birthday. He was born in 1769. As Emperor of France he was loved, respected and feared. He is acknowledged as one of the most brilliant military leaders in history. The Napoleonic Code, which he took part in writing, is the framework for many of the legal systems used in the world today. One of the most salient features is that the Code is not subject to judicial interpretation. The law can be revised by appropriate legislative action, but it cannot be interpreted by judges.

History of course, is written by the victors. Napoleon has been vilified for centuries. However, a recent biography by Andrew Roberts, “Napoleon: A life” sheds new light on this self-made man. He rose from obscurity on the island of Corsica to rule a continent.

Yuan Funnies II

The Economy:  Ah yes … the economy … well, as Led Zeppelin famously sang, “The Song Remains The Same.” We’ve had more mixed data showing the patient is still breathing. The jabbering jabberwockies of the mainstream media are still expecting Fed leadership.   All of the real action is overseas where the din is something out of a headbangers ball. Iran: oil for nukes; Ukraine: oil for default; Canada: oil for anything; Greece: bailout for servitude; Germany: Nobiscum deus; Brazil: corruption for economic paralysis; U.S.: politics for Bonzo; Japan: demographics for nightmares; China for self-immolation … and for the planet at large, currency wars for all.

Food for Thought: The Swampers, The Wrecking Crew and The Fortunes, “You’ve got your troubles and I’ve got mine.”  Protect your portfolios by pulling in your horns a bit. Whether the recent volatility is a pullback or a correction, be positioned to take advantage of opportunity. Despite the Gloom and Doom Crowd, recent market action doesn’t have the earmarks of the bear. Granted we’re in uncharted territory with 6-years of central banker mayhem, but this stock market is missing the unbridled euphoria of a major top. However we’re painfully long overdue for a correction. Bear in mind that pullbacks are usually a drop of about 5%; corrections typically last 1-3-months and have a 10-20% drop in prices. Bear markets see a drop of greater than 20% and last about 18 months. But the carnage could be greater. In the Dot Com bust, the Nasdaq lost 80% of its value. It took 15-years to recover. So if your advisor is telling you to relax because the market always recovers, be cautious. There’s too much complacency out there and it begins with advisors. Contact us for a fresh approach and a thorough review of your situation. We Quarterback Money®.

Yuan Devalued; Beware Investing in Chinese Checkers

In a surprise move, China devalued its currency today. Some say it’s an effort to make Chinese exports more competitive. Others say it’s a hissy fit over being denied entry into the IMF’s Special Currency Club. Regardless of which, the action is another move in the currency wars that have been raging for several years now. Global stock markets fell on the news since it was seen as confirmation that the Chinese economy, the world’s second largest, was in more trouble than previously thought. For years we’ve heard tales of ghost cities, bridges to nowhere, epic corruption and economic sleight of hand. Most of these murmurs were discounted as part of the sublime Chinese way of doing things. But with the crash of the Chinese stock market bubble this summer, the iron fist of the Mandarins has been bared. It’s a Communist command economy. It’s the birthplace of gunpowder, paper, foot binding, Mao’s backyard blast furnaces and financial sleight of hand directed by government officials. If you find China irresistible, try gambling in Macau.

Investing Basics

Years ago, Arthur Zeikel, president of Merrill Lynch Asset Management, sent his daughter a letter teaching her some investing basics.

Enjoy!

Personal portfolio management is not a competitive sport. It is, instead, an important individualized effort to achieve some predetermined financial goal by balancing one’s risk-tolerance level with the desire to enhance capital wealth. Good investment management practices are complex and time consuming, requiring discipline, patience, and consistency of application. Too many investors fail to follow some simple, time-tested tenets that improve the odds of achieving success and, at the same time, reduce the anxiety naturally associated with an uncertain undertaking.

I hope the following advice will help:

A fool and his money are soon parted. Investment capital becomes a perishable commodity if not handled properly. Be serious. Pay attention to your financial affairs. Take an active, intensive interest. If you don’t, why should anyone else?

There is no free lunch. Risk and return are interrelated. Set reasonable objectives using history as a guide. All returns relate to inflation. Better to be safe than sorry. Never up, never in. Most investors underestimate the stress of a high-risk portfolio on the way down.

Don’t put all your eggs in one basket. Diversify. Asset allocation determines the rate of return. Stocks beat bonds over time.

Never overreach for yield. Remember, leverage works both ways. More money has been lost searching for yield than at the point of a gun (Ray DeVoe).

Spend interest, never principal. If at all possible, take out less than comes in. Then a portfolio grows in value and lasts forever. The other way around, it can be diminished quite rapidly.

You cannot eat relative performance. Measure results on a total return, portfolio basis against your own objectives, not someone else’s.

Don’t be afraid to take a loss. Mistakes are part of the game. The cost price of a security is a matter of historical insignificance, of interest only to the IRS. Averaging down, which is different from dollar cost averaging, means the first decision was a mistake. It is a technique used to avoid admitting a mistake or to recover a loss against the odds. When in doubt, get out. The first loss is not only the best, but is also usually the smallest.

Watch out for fads. Hula hoops and bowling alleys (among others) didn’t last. There are no permanent shortages (or oversupplies). Every trend creates its own countervailing force. Expect the unexpected.

Act. Make decisions. No amount of information can remove all uncertainty. Have confidence in your moves. Better to be approximately right than precisely wrong.

Take the long view. Don’t panic under short-term transitory developments. Stick to your plan. Prevent emotion from overtaking reason. Market timing generally doesn’t work. Recognize the rhythm of events.

Remember the value of common sense. No system works all of the time. History is a guide, not a template.

This is all you really need to know.

When this article was originally published in 1995, Arthur Zeikel was president of Merrill Lynch Asset Management in New Jersey.

Hat tip Jeff Saut, Raymond James/Barry Ritholtz

Charlatans, Tramps and Thieves

It’s hard to remember when the world of online investment opinions didn’t exist. Nobody knew or cared what the individual was buying or selling. Opinions were reflected in the price of a stock.

But since the late 1990s the internet has fostered an unlimited array of charlatans, cranks, fools and so-called gurus. Today, any idiot can shout his own stupidity. Much of this is nonsense but the noise is deafening to everyone and confusing to many.

There was the need for more information because Wall Street did a miserable job of getting the word out to investors. But, for the most part, the information vacuum that was created has been filled with haters, screamers and shouters. Granted there are some nuggets amidst the garbage, but the effluent predominates.

Blogs, Facebook, LinkedIn, Twitter and the other social media outlets are full of analysis, predictions and cries of pending doom. The vast majority are pointless forecasts. Perma-Bulls and Perma-Bears coexist in the never-ending circus that serious investors avoid. No one remembers their absurd calls. But again, the noise is deafening.

Smart investors know that online opinion is garbage. There’s no accountability, no performance review and no regulation. Caveat Emptor couldn’t be more applicable.

Stocks Dive

Stocks have had their worst week since the summer of 2011. In 2011  the Fed came to the rescue with another injection of monetary stimulus to prop-up the markets. Stocks dutifully took off to new heights. Now the Fed has indicated that liftoff is around the corner. Thus far, further stimulus appears to be off the table. But we will see. I wouldn’t be surprised to see the Fed back away from tightening. I wouldn’t be surprised to see the Fed inject trillions more into the stock market asset bubble that they’ve come to covet as their special legacy. The proof will be in the pudding as a correction is long overdue. For the past 6-years, the only consistent Fed action has been to prove that Keynesian Economics is sacrosanct. Why should this time be any different?