Every four years when the Winter Olympics come around, I can't help but stay glued to the television and watch with awe the extraordinary athleticism, agility, speed, and calculated recklessness on display. It's astounding to think that out of the thousands of athletes that compete in these sports, the ones who end up on the medal podium are the ‘cream of the crop’ or, ‘world class’.
The same can be said about a number of stocks and ETFs currently – they are out performing their peers. Much like an Olympic athlete who has to compete against others in his/ her respective event so too do investments. Think about it for a second; there are thousands of stocks that are traded throughout the world, all of these stocks have to compete against their peers and the overall market. So when determining which stock or ETF is worthy of that coveted gold medal – i.e. a place in the portfolio -- it's best to start by putting the stock or ETF through a relative strength competition so that your portfolio is populated with gold, silver & bronze ‘medalists’ and not the has-beens. This is best done by analyzing trend and relative strength.
Thus far a snapshot of returns for the major equity benchmarks suggests a dearth of medals, with a rather tepid start to the year. With eight weeks of 2010 already recorded history, the S&P 500 (SPX) is down just 0.95%, while the S&P Equal-weighted Index is up 0.72%. These numbers do not tell the entire story, since over the duration of those 8 weeks the market experienced some rather defined phases; beginning with a strong push to new highs at the start of the year, which fizzled in mid-January. From that point the overall markets regressed to mean, and then beyond, falling 7-10% based on the major equity benchmarks. Subsequently, the markets have fought back to essentially where they began the year. US Equities remain an emphasized asset class while non-emerging market international has fallen from favor. The general trend characteristics remain positive, but risk levels are elevated. This has caused me to take a ‘tapping the brakes’ approach with respect to Equity exposure.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.
Monday, March 1, 2010
Friday, February 19, 2010
Consequences of a Rising Dollar
The recent strength in the US dollar has had an impact on the market. First, let’s consider what broad effects a rising US dollar traditionally has on the market: historically a rising dollar has coincided with a decline in commodity prices and a decline in international equities.
With that said, the international markets are on defense; interestingly emerging markets continue to exhibit positive relative strength versus the developed countries. The systematic discipline of the portfolio has reduced exposure to the International/Global equity ETF's that exhibited weakness.
Commodities, particularly metals, had been a portfolio holding for a while as metals were showing some of the strongest relative strength in the commodity area. That strength quickly evaporated with the dollars rise and, as a result, Silver was one of the first positions to be sold.
Overall, we're at an interesting spot right now as we've had some indicators reverse down, but others remain positive. When looking at a trend chart of the S&P it appears that we had a well needed reversion to the mean. Of course, that could change, but I am pleased with how the portfolios handled what was a difficult market for many in 2009.
Certainly there are many cross-currents today and it would be helpful to have some means for accurately predicting what the next pieces of information will be, however the reality is that the future will not reveal itself to us until it is upon us, so we use the information that we have today to make the best decisions possible.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
With that said, the international markets are on defense; interestingly emerging markets continue to exhibit positive relative strength versus the developed countries. The systematic discipline of the portfolio has reduced exposure to the International/Global equity ETF's that exhibited weakness.
Commodities, particularly metals, had been a portfolio holding for a while as metals were showing some of the strongest relative strength in the commodity area. That strength quickly evaporated with the dollars rise and, as a result, Silver was one of the first positions to be sold.
Overall, we're at an interesting spot right now as we've had some indicators reverse down, but others remain positive. When looking at a trend chart of the S&P it appears that we had a well needed reversion to the mean. Of course, that could change, but I am pleased with how the portfolios handled what was a difficult market for many in 2009.
Certainly there are many cross-currents today and it would be helpful to have some means for accurately predicting what the next pieces of information will be, however the reality is that the future will not reveal itself to us until it is upon us, so we use the information that we have today to make the best decisions possible.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Wednesday, February 3, 2010
Please - No knee jerk reactions
Through the first half of January 2010 all of the major indexes had posted gains of close to 2% before the last three days of last week brought much of that to a screeching halt. Despite the fact that indexes like the Dow Jones Industrial Average fell more than 400 points in a week’s time we have mostly seen a reversion to the mean from statistically overbought levels. In layman’s terms: demand had pushed prices way up and this pullback has brought prices back to the middle of the ‘field’.
A knee jerk reaction is not necessary, nor productive. What we have not seen is deterioration in the trend charts of major indices or in the relative strength relationship between cash and market indices. Stated another way, equities as a group, are still exhibiting superior relative strength when compared to cash. Instead of a knee jerk I will take some time and review the current positions in the portfolio. If your stocks are giving sell signals, violating major areas of support, violating trendlines or dropping in score, I will be sure to take some action. Otherwise, the only action that may need to be taken is to raise stop loss points.
150 point swings in the market may seem like a relic of 2008 but, the fact of the matter is that for most investors such moves are simply ‘noise’. What is far more meaningful is not whether the market is fluctuating (as surely it will), but what trends can be deduced from those fluctuations. Is the market still moving higher on rallies, and is it able to find buyers at higher levels than on previous declines? Those are the questions that are worthwhile to investors and also what the Point & Figure chart is designed to evaluate. Right now we are still observing general trends of higher tops and higher bottoms from the equity benchmarks.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
A knee jerk reaction is not necessary, nor productive. What we have not seen is deterioration in the trend charts of major indices or in the relative strength relationship between cash and market indices. Stated another way, equities as a group, are still exhibiting superior relative strength when compared to cash. Instead of a knee jerk I will take some time and review the current positions in the portfolio. If your stocks are giving sell signals, violating major areas of support, violating trendlines or dropping in score, I will be sure to take some action. Otherwise, the only action that may need to be taken is to raise stop loss points.
150 point swings in the market may seem like a relic of 2008 but, the fact of the matter is that for most investors such moves are simply ‘noise’. What is far more meaningful is not whether the market is fluctuating (as surely it will), but what trends can be deduced from those fluctuations. Is the market still moving higher on rallies, and is it able to find buyers at higher levels than on previous declines? Those are the questions that are worthwhile to investors and also what the Point & Figure chart is designed to evaluate. Right now we are still observing general trends of higher tops and higher bottoms from the equity benchmarks.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Tuesday, January 5, 2010
Top Ten Ways to Sabotage Your Portfolio
1. Forget that the Driving Force of Any Market is Supply & Demand
The price of anything comes down to supply and demand – it’s that simple. I don’t care whether we are talking about oil, iPods, golf, lemonade, or the stock market. Simply said, when there are more buyers than sellers willing to sell, prices will move higher. When there are more sellers than buyers willing to buy, prices will move lower. In the end, there is nothing else. The reason that the prices of produce in the supermarkets change, is the very same reason that prices on Wall Street change.
The process that I use to determine if supply or demand is in control is called Point & Figure. It is a logical, sensible and organized way of recording the supply and demand relationship. It arranges the non-stop flow of information that is available in a way that makes sense to me. A Point & Figure chart is just a way of organizing the price data for a stock, ETF or mutual fund into a pattern that makes more sense.
As always, if you would like more information regarding this subject, or any other, feel free to contact me.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
The price of anything comes down to supply and demand – it’s that simple. I don’t care whether we are talking about oil, iPods, golf, lemonade, or the stock market. Simply said, when there are more buyers than sellers willing to sell, prices will move higher. When there are more sellers than buyers willing to buy, prices will move lower. In the end, there is nothing else. The reason that the prices of produce in the supermarkets change, is the very same reason that prices on Wall Street change.
The process that I use to determine if supply or demand is in control is called Point & Figure. It is a logical, sensible and organized way of recording the supply and demand relationship. It arranges the non-stop flow of information that is available in a way that makes sense to me. A Point & Figure chart is just a way of organizing the price data for a stock, ETF or mutual fund into a pattern that makes more sense.
As always, if you would like more information regarding this subject, or any other, feel free to contact me.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Tuesday, December 22, 2009
The Role of the Consumer in the Economic Recovery
The U.S. economy is the largest in the world and consumer spending accounts for approximately 2/3 of our economic activity. Therefore, a reviving US consumer will be a big help not just domestically but globally. Based on this, it appears that when the world economy gets pulled out of recession, it will likely be with the help of consumer spending.
Not so fast. The US is not in the midst of a consumer spending boom and the prospect for one does not seem to be on the horizon either. The consumer spending boom that I am referring to is going on in China. This year, it is expected that China will overtake the U.S. in sales of automobiles, refrigerators, washing machines, and desktop computers. The biggest consumer market in the world in a few years may no longer be the U.S.—it may be China.
The “new normal” that Bill Gross refers to is going to be a global investment marketplace, not one that is focused solely on the US. While it may not be comfortable to move toward a global investment policy, it might be the only way to earn a decent return.
Fortune editor Geoff Colvin has an interesting interview with Pimco’s Mohamed El-Erian. Among other things, Mr. Colvin asks him what investors will have to do differently to cope with the new global environment. Mr. El-Erian’s response is quite direct:
“The average investor has two issues today. First, the average investor is too U.S.-centric. There’s a reason for that; the behavioral finance people will tell you that we like the familiar, so we tend to invest in names that we know, that give us comfort.”
“The problem is that you don’t want to be too U.S.-centric in a globalizing world where the center of gravity is shifting. So the first thing for the average investor to recognize is that the asset allocation of tomorrow is much more global than the asset allocation of yesterday.”
“Second, most of us have been very lucky — we haven’t had to worry about inflation for a long time. We’re moving toward a much more fluid world in which, at some point, inflation will come back.” Mr. El-Erian suggests that individual investors need access to an inflation hedge.
Along this line, CNN Money is currently running a poll on their website, asking investors “Which type of investments will you focus on in 2010?”
The results thus far:
U. S. Stocks 35%
Emerging Markets 15%
Bonds 10%
Commodities 6%
Bank accounts 33%
At the risk of redundancy, I am repeating what was stated above, “the asset allocation of tomorrow is much more global than the asset allocation of yesterday.” The average investor, based on the results of the poll, has not yet grasped this fact. To capitalize on the growth of the world economy it is incumbent on us to invest in the emerging markets; China, Brazil & India, to name a few.
In summary, we need to watch for slower growth in the US, depend less on the US consumer’s spending as a driver of global growth and focus on the smaller economies which may take up the leadership baton.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Not so fast. The US is not in the midst of a consumer spending boom and the prospect for one does not seem to be on the horizon either. The consumer spending boom that I am referring to is going on in China. This year, it is expected that China will overtake the U.S. in sales of automobiles, refrigerators, washing machines, and desktop computers. The biggest consumer market in the world in a few years may no longer be the U.S.—it may be China.
The “new normal” that Bill Gross refers to is going to be a global investment marketplace, not one that is focused solely on the US. While it may not be comfortable to move toward a global investment policy, it might be the only way to earn a decent return.
Fortune editor Geoff Colvin has an interesting interview with Pimco’s Mohamed El-Erian. Among other things, Mr. Colvin asks him what investors will have to do differently to cope with the new global environment. Mr. El-Erian’s response is quite direct:
“The average investor has two issues today. First, the average investor is too U.S.-centric. There’s a reason for that; the behavioral finance people will tell you that we like the familiar, so we tend to invest in names that we know, that give us comfort.”
“The problem is that you don’t want to be too U.S.-centric in a globalizing world where the center of gravity is shifting. So the first thing for the average investor to recognize is that the asset allocation of tomorrow is much more global than the asset allocation of yesterday.”
“Second, most of us have been very lucky — we haven’t had to worry about inflation for a long time. We’re moving toward a much more fluid world in which, at some point, inflation will come back.” Mr. El-Erian suggests that individual investors need access to an inflation hedge.
Along this line, CNN Money is currently running a poll on their website, asking investors “Which type of investments will you focus on in 2010?”
The results thus far:
U. S. Stocks 35%
Emerging Markets 15%
Bonds 10%
Commodities 6%
Bank accounts 33%
At the risk of redundancy, I am repeating what was stated above, “the asset allocation of tomorrow is much more global than the asset allocation of yesterday.” The average investor, based on the results of the poll, has not yet grasped this fact. To capitalize on the growth of the world economy it is incumbent on us to invest in the emerging markets; China, Brazil & India, to name a few.
In summary, we need to watch for slower growth in the US, depend less on the US consumer’s spending as a driver of global growth and focus on the smaller economies which may take up the leadership baton.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations.
Friday, December 11, 2009
One lump of coal, or two?
The holiday season is in full swing. People are out shopping, decorating, and preparing for the in-laws two week invasion. Susan & I use this opportunity to try and gain a little extra leverage over our kid’s behaviour. In years past, kids were threatened with a lump of coal in their stocking however in our house we have an ‘elf on the shelf’ for each kid. These elves travel to Santa every night to report on what they observed during the day. Soon the elves will likely be saving energy and tele-conferencing or texting Santa instead…
With Cap-and-Trade front and center in the news and the Climate Conference starting in Copenhagen this past Monday, one would expect coal to be a ‘unfavored asset’, at least until the 25th. Scientists, government officials, and non-government officials from 170 countries are presenting their cases and proposing a course of action on the topics of climate control and energy usage/restrictions. There is speculation on all sides of the issue as to what provisions, if any, will be agreed upon during this conference.
In a related development early last week, Australia, the developed world’s highest per capita emissions producer, rejected the proposed Cap-and-Trade bill. Stating that the bill would cost Australia; the 4th largest coal producing nation, 5 billion Australian dollars ($3.5B USD), 3000 jobs, and 10 coal mines. With the economic crisis still at the forefront of everyone’s mind, we will see what takes priority at the conference – economic recovery or global warming.
Adding to the drama was the recent scandal where by internet hacking revealed that several scientists either fudging or suppressed data to support their claims. Domestically, another related tidbit on this contentious subject was released Monday; with the EPA declaring that they have concluded that greenhouse gases are endangering people's health. Is this fact, political ploy or something in between? This declaration will effectively give the EPA authority to regulate co2 and other greenhouse gases in the US.
In short, the Cap-and-Trade battle goes on and may cause concern for anyone that has a hefty exposure to coal or the energy market.
Despite all this and regardless of if we were ‘naughty’ or ‘nice’ this may be a good year to receive coal, especially if it is in the form of coal stocks. This may sound ‘un-green’ from an environmental perspective, but from an investment standpoint, coal has yielded lots of ‘green’ returns this year and is a favored sub-sector within Energy.
Regardless of which side of the fence you reside from an environmental perspective, realize that technical analysis will help to steer us in an effective, unbiased and de-politicized manner regarding your investment portfolio. The bullish (positive) technical picture for coal remains intact at this point.
One way to invest in coal is through the ETF market. ETFs allow us to buy a ‘basket’ of stocks representing a specific sector. One such ‘basket’ is KOL (Market Vectors-Coal) representing an investment in 31 coal companies. This ETF scores 5.99 out of a possible 6 - almost a perfect score.
With Cap-and-Trade front and center in the news and the Climate Conference starting in Copenhagen this past Monday, one would expect coal to be a ‘unfavored asset’, at least until the 25th. Scientists, government officials, and non-government officials from 170 countries are presenting their cases and proposing a course of action on the topics of climate control and energy usage/restrictions. There is speculation on all sides of the issue as to what provisions, if any, will be agreed upon during this conference.
In a related development early last week, Australia, the developed world’s highest per capita emissions producer, rejected the proposed Cap-and-Trade bill. Stating that the bill would cost Australia; the 4th largest coal producing nation, 5 billion Australian dollars ($3.5B USD), 3000 jobs, and 10 coal mines. With the economic crisis still at the forefront of everyone’s mind, we will see what takes priority at the conference – economic recovery or global warming.
Adding to the drama was the recent scandal where by internet hacking revealed that several scientists either fudging or suppressed data to support their claims. Domestically, another related tidbit on this contentious subject was released Monday; with the EPA declaring that they have concluded that greenhouse gases are endangering people's health. Is this fact, political ploy or something in between? This declaration will effectively give the EPA authority to regulate co2 and other greenhouse gases in the US.
In short, the Cap-and-Trade battle goes on and may cause concern for anyone that has a hefty exposure to coal or the energy market.
Despite all this and regardless of if we were ‘naughty’ or ‘nice’ this may be a good year to receive coal, especially if it is in the form of coal stocks. This may sound ‘un-green’ from an environmental perspective, but from an investment standpoint, coal has yielded lots of ‘green’ returns this year and is a favored sub-sector within Energy.
Regardless of which side of the fence you reside from an environmental perspective, realize that technical analysis will help to steer us in an effective, unbiased and de-politicized manner regarding your investment portfolio. The bullish (positive) technical picture for coal remains intact at this point.
One way to invest in coal is through the ETF market. ETFs allow us to buy a ‘basket’ of stocks representing a specific sector. One such ‘basket’ is KOL (Market Vectors-Coal) representing an investment in 31 coal companies. This ETF scores 5.99 out of a possible 6 - almost a perfect score.
Wednesday, December 9, 2009
Strategic vs. Tactical Asset Allocation
The internet is truly an amazing tool! You have the ability to check on the fundamentals of any company just as quickly as I can. And, if looking for a strategic asset allocation, there are plenty of companies that will gladly provide an allocation without cost. But is it a worthwhile allocation?
Not in my opinion!
Let’s take a look at the chart below which shows what each domestic asset class returned over the past decade.
iShares MorningstarLarge Value: -15.42%
iShares MorningstarLarge Core: -16.94%
iShares MorningstarLarge Growth: -64.20%
iShares MorningstarMid Value: 47.38%
iShares MorningstarMid Core: 51.85%
iShares MorningstarMid Growth: -22.82%
iShares Morningstar Small Value: 76.08%
iShares Morningstar Small Core: 91.12%
iShares Morningstar Small Growth: -25.02%
returns for the period: 01/01/200 – 11/01/2009
The flip-side to a strategic allocation is a tactical allocation. At any point in time there are asset classes which are behaving better than others. By taking a tactical approach to the market, our allocation is going to change periodically. We examine six major asset classes, compare them to one another on a relative strength basis and determine which two or three should be emphasized. The asset classes considered are US Equity, International Equity, Commodities, Foreign Currency, Fixed Income & Cash. Two assets classes are typically emphasized, but Cash may be the sole recommendation if specific criteria are not met by any other asset class. Assuming US Equity is favored, we will compare the nine style boxes shown above to determine where the strength lies, similar analysis transpires to determine the international allocation, if any. The point is - that the allocation is changing based upon what the supply and demand forces within the market are telling us. We are using a logical, organized methodology to know where to be and when to be there.
Do not hesitate to email me if you have questions regarding this or any other strategy.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations
Not in my opinion!
Let’s take a look at the chart below which shows what each domestic asset class returned over the past decade.
iShares MorningstarLarge Value: -15.42%
iShares MorningstarLarge Core: -16.94%
iShares MorningstarLarge Growth: -64.20%
iShares MorningstarMid Value: 47.38%
iShares MorningstarMid Core: 51.85%
iShares MorningstarMid Growth: -22.82%
iShares Morningstar Small Value: 76.08%
iShares Morningstar Small Core: 91.12%
iShares Morningstar Small Growth: -25.02%
returns for the period: 01/01/200 – 11/01/2009
The flip-side to a strategic allocation is a tactical allocation. At any point in time there are asset classes which are behaving better than others. By taking a tactical approach to the market, our allocation is going to change periodically. We examine six major asset classes, compare them to one another on a relative strength basis and determine which two or three should be emphasized. The asset classes considered are US Equity, International Equity, Commodities, Foreign Currency, Fixed Income & Cash. Two assets classes are typically emphasized, but Cash may be the sole recommendation if specific criteria are not met by any other asset class. Assuming US Equity is favored, we will compare the nine style boxes shown above to determine where the strength lies, similar analysis transpires to determine the international allocation, if any. The point is - that the allocation is changing based upon what the supply and demand forces within the market are telling us. We are using a logical, organized methodology to know where to be and when to be there.
Do not hesitate to email me if you have questions regarding this or any other strategy.
Securities and Investment Advisory services offered through NBC Securities, Inc., Member FINRA and SIPC. Investment products 1) are not FDIC insured, 2) not guaranteed by any bank and 3) may lose value including a possible loss of principal invested. NBC Securities does not provide legal or tax advice. Recipients should consult with their own legal or tax professional prior to making any decision with a legal or tax consequence.This is not an offer to sell or buy any securities products, nor should it be construed as investment advice or investment recommendations
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