Monday, February 20, 2017

Know Thy Custodian!

"Must-see TV" consists of only two shows for me, i.e., Fareed Zakaria's GPS on CNN and Sixty Minutes on CBS.  Last night, I was slow finding the remote after Sixty Minutes, when some fictional show began.  Before I could cut off the TV, I heard the word "Ponzi" and was hooked.  I had to listen!

It seems a prominent lawyer decided to retire and move to France, because her investment portfolio had done so well.  Unfortunately, as soon as she resigns her partnership, she learns she has been a victim of a Ponzi scheme.

I am not insensitive to such victims, but Ponzi schemes are so easy to spot that it is hard to generate a great deal of sympathy.  Remember this:  if there is not an independent third-party that holds the actual assets and sends reports directly to the client, you should assume it is a Ponzi scheme and stay away.

Please re-read that last sentence again and again.  Tell your friends!

For my clients, their assets are held by TD Ameritrade, who also sends monthly statements directly to the client.  Other good custodians include Schwab and Pershing.  If you don't know who your custodian is, stop what you are doing right now and find out!

Sunday, February 19, 2017

Janet's Woes

The two primary methods of controlling the economy are monetary policy (by the Fed) and fiscal policy (by Congress).  Since the 2008/9 Global Financial Crisis, the United States has only had monetary policy to control the economy, as Congress has been worse than useless.  To the extent that our economy has recovered, we can thank the Fed.  However, the good news is that, as monetary policy has reached its limits, fiscal policy may come back to life, thanks to the elimination of gridlock last November.  For years, the stock market has over-reacted to any possible action by the Fed.  Today, it is starting to over-react to anything on Capitol Hill.

This should be good news for Fed Head Janet Yellen and the Board of Governors.  They want to "normalize" interest rates, which is Fed-speak for raising rates, and they should, but they face some conflicting pressures.

First, there are the Libertarians, who believe anything-the-government-does-is wrong.  They believe that holding interest rates so low for so long was an illegal action to punish one class of Americans, i.e., the savers.  They believe low interest rates have chased money out of bonds and into stocks, creating a terrible bubble, which is untrue.  Also, because the government is always wrong, they are worried that the government now agrees with them and want to increase interest rates, which must therefore be wrong.  They also want even more audits of the Fed, as well as reducing the Fed's independence.

Second, there are the Republicans, whose sole belief system is that they-get-credit-for-anything-that-goes-right-and-Democrats-get-blamed-for-anything-that-goes-wrong, which perfectly mirrors the sole belief system of the Democrats.  More to the point, they would not confirm Jesus Christ to the Fed's Board of Governors if nominated by a Democrat.  There are now four vacancies on the Board of eight governors.  In a population of 340 million people, they cannot find four qualified people???  The governor tasked with bank regulation just resigned.

Then, there is the Presidential problem.  Libertarians wanted to raise interest rates years ago, and now so does Janet.  But, the President has already said the dollar is too strong, which hurts American exporters.  Raising rates will normally make the dollar even stronger, reducing demand for American-made products.  In addition, rising interest rates cause income capitalization rates to rise, which causes the value of commercial real estate to fall.  So, professionally and personally, the President doesn't see the need for higher interest rates.

My expectation is that she will get the "last laugh," raising rates once or twice before her term expires next January, when she will be ceremoniously dumped by the President and will exit like Frank Sinatra, doing it her way!

Saturday, February 18, 2017

Needless Hypocrisy

Last time . . .

The Democrats were right, and the Republicans were wrong.

This time . . .

The Republicans are right, and the Democrats are wrong.

You will recall the summer of 2011 when the Republicans threw such a hypocritical hissy-fit about the Debt Ceiling that Standard & Poor's actually lowered the credit rating of the United States for being ungovernable - not for having bad credit but for being ungovernable.  Since then, we have either raised the debt ceiling or suspended it several times.  Guess what happens again next month?

Because the Republicans are in power, the Democrats will hiss that "something" must be done about our growing debt, that we can no longer waste money on tax cuts for the rich and must raise those taxes.  It is hypocrisy writ large!

Long ago, the debt ceiling had already outlived its usefulness.   We are the only advanced nation with such a meaningless device.  Not only does the debt ceiling not help, it actually makes debt management more difficult by unleashing the hypocrisy of Republicans and Democrats, further polluting conversations.

If you think the arbitrary debt ceiling limitation has done any good, take a look at this chart:



An arbitrary debt ceiling as a curb on spending never made sense and obviously has never worked.  It is time to dispense with the notion . . . and actually negotiate with each other.

Thursday, February 16, 2017

Crazies In The Senate

The difference between my children and my guns is that . . . I know how many children I have.

The difference between the NRA and myself is that . . . I am a SANE gun-lover.

The difference between the Senate Republicans and myself is that . . . I have a conscience!

I am appalled the Senate Republicans are restoring the right of crazy (yes, crazy, not merely the mentally handicapped) people to buy guns.  They are parroting the NRA excuse that keeping guns out of the hands of a few crazy people will not prevent ALL gun deaths -- no kidding?  Nobody ever said it would!

Reducing senseless gun violence has no "silver bullet."  Reducing such unnecessary violence will require many, many, many small things.  For example, teaching gun safety in school will not prevent ALL gun deaths either, but it WILL help in some small way.  There are numerous other small steps.  Of course, the first step is to stop worshiping at the checkbook of the NRA.

To the Senate Republicans . . . Shame on you!!


48 Hours

During a mere 48 hours this week, the following information was released:

1.  The Small Business Optimism Index rose again in January, as it has for the last three months, driven largely by the increase in small business owners who think the next three months will be a good time to expand their business.  (This is good!)

2.  The Consumer Price Index showed inflation has picked up this year, rising a surprising 0.6% in one month.  However, this core level of only 0.4% was skewed higher by the rising price of gasoline.  (Inflation is so much better than deflation.)

3.  The Producer Price Index was very similar to the CPI, which is somewhat unusual in itself, showing a 0.6% increase in January that was also skewed upwards by energy prices.  The core level of inflation at the producer level was only 0.2% in January.  (That is a little too low.)

4.  Rising inventory levels mean the consumers are buying less or that businesses are more optimistic and are building inventory levels to meet expected sales.  In December, inventory levels rose 0.4% . . . for the latter reason.  (The 2016 inventory correction is over!)

5.  Home Builder Sentiment dropped 2 points last month, not because homebuyers stayed away, but because the cost of building is rising so rapidly.  (Evidence of real inflation?)

6.  Utility Output declined 0.3% in January.  Normally, this is not a good thing, as it might indicate declining demand by business for electricity.  However, this decline was due to warmer weather this January compared to last year.  (No big deal.)

7.  Retail sales include auto sales, which are more volatile.  If you strip out those volatile numbers, retail sales increased a very healthy 0.8% in January, compared to a 0.4% increase in December.  (The consumer is stronger than expected.)

This was not all the economic data released during this 48 hour period and ignores the normal gushing of financial data from thousands of public companies.  It also ignores the unusually heavy flow of geopolitical events.

Now, how does a person consume and digest so much information?  How does a person "drink from a fire hose?"

It's simple . . . their financial advisor should be their "designated fire hose drinker!"

Wednesday, February 15, 2017

Quick & Dirty Simplicity

Momentum investing, channel investing, trend following -- all are buzzwords and/or excuses for not knowing economic pressure points or individual stocks.

Addiction to these approaches stems from their quick and dirty simplicity.  Here is a good example:

Chart of the Day

You can quickly see the Dow shows no indication that it is going to break out of its upward channel.  Investors should  therefore rest comfortable that disaster is not imminent.

This "quick and dirty simplicity" is worth a thousand words -- turning a thousand words into one instantly understandable chart.  My sanguine view of the market comes from understanding economic pressure points, but it simply reassuring to see the chart agrees.  It should only be used to confirm your market expectations, not to make them.

Plus, it saves me the trouble of typing a thousand words and saves the investor the trouble of reading a thousand words . . . whew!

Sunday, February 12, 2017

Look Who's Back ?

Nobel prize-winning investment theory Modern Portfolio Theory found that performance is increased, while risk is decreased, over the long-term, if the portfolio is allocated across the many investment classes, which includes European stocks.  However, those investors who had any European exposure lost badly a few years ago and are reluctant to to embrace that hot coal again.  Once burned, twice shy, I guess?  And, I do understand.

Still, it is time to reconsider.  For the first time since 2012, corporate profits in Europe turned up 5.05% in the fourth quarter.  "The mother's milk of stock prices is corporate profits."  As confirmation and to everybody's surprise, the euro is up 1.2% so far this short year.

More surprising are the "bullets missed."  Nobody expected the different European stocks market to recover so quickly after the stunning Brexit vote nor after the stunning Trump victory.  Those markets are displaying a resilience that was not thought to be there.

Of course, governance is the Achilles's Heal of the European Union.  It will survive the exit of Britain, largely because the Brits continued using the pound as their currency, not the euro.   France is different and uses the euro.  It also faces an election this Spring.  If far right candidate Marine La Pen wins, she is expected to return France to the franc, leaving the euro, which is a direct threat to the stability of the European Union.

Money invested in the bond market is often considered "smarter" than money in the stock market.  The European bond market has a clear case of the jitters.  The difference in yield between French bonds and German bonds has risen over the last four months.

No discussion of Europe is complete without mentioning the "wild child," who is Greece.  After its near-death experience five years ago, it returned to the bond market triumphantly in 2014 when it refinanced much of its debt.  However, the first payment of about $2.1 billion comes due in July, and it is not clear how they will repay it.  The bond market thinks it will not be a problem as the value of those bonds has increased significantly in recent weeks.  Importantly, Europe has already had five years to adjust to this eventuality.  Default now will not be as destabilizing as default in 2012.

My sense is that it will soon be time to allocate more money into Europe, but not before the French election and maybe not until it is clear the Greeks have changed their profligate entitlements.  Stay tuned . . .


Friday, February 10, 2017

Slippery Slope

It happened the first Saturday after the November presidential election.  I was watching The Golf Channel, when they started talking about the impact of Trump on golf and how his election might affect play at his already-expensive golf courses.  It got me thinking about Trump, but it was Saturday, which is my "news-free" day.  I decided to just "tough-it-out" and endure the election coverage.  But, I was soiled . . .

That afternoon, I got in my car and turned on the radio, which was on CNN, and I started listening.  Soiled again!  Twice on my news-free day, I was soiled with news!!

Each Saturday since then, I have felt less and less adamant about maintaining my news--purity.  I started watching local news, just for the weather forecast . . . of course!  That spread to network news, because a little news wouldn't hurt . . . would it?

The world is different without 24/7 saturation news coverage, and abstinence gives you a better perspective on the news the other six days of the week.  Therefore, I must redouble my efforts to regain that perspective . . . by avoiding news-noise on Saturday.

Wednesday, February 8, 2017

A Caffenated Clue

Starbucks has always been an enigma to me.  Its customers seem fiercely loyal to the brand, for some reason.  My perception has been that the coffee is too bitter and too expensive.  Now, it seems there is a relationship to love of Starbucks and political leanings.  Take a look at this chart.

Trump Immigration Ban: Why Starbucks CEO Isn't Too Concerned About Backlash and Boycotts - starbucks consumer survey

The more you like Starbucks, the more likely you are to vote Democratic.  The less you like it, the more likely you are to vote Republican.

Now, we have yet another way to label people!  If a person praises Starbucks, don't praise Trump around them.

Trump Triggers ?

Senator John McCain has always been one of my personal heroes.  When he was trashed last year by then-candidate Donald Trump, who even denigrated McCain's war record as a prisoner-of-war, I saw very clearly the naked character of Trump.  Readers may recall I wrote that Trump was trash and not fit to be president.  Trashing McCain was a red-line for me!

Nonetheless, he is now my president.  If ordered into combat by him, I would go.  If I could take a bullet to protect him, I would.  I wish him only the greatest success, because that is good for the country I love.

Of course, it is not that easy when you are responsible for the financial health of others.  My expectation is that Trump will be bad for America.  (Yes, I do understand supply-side economics and dynamic scoring.)  But, how do I protect my clients?

My greatest fear is always a financial crisis, because they happen so quickly and recover so slowly.  Fortunately, there is a distant-early-warning system.  For example, when I see the prices of credit default swaps rise unexpectedly, especially for money-center banks or sovereign debt, I know the stage is being set for a financial crisis.  The same can be true for the TED spread or interest rate differential between Treasuries and euro dollars.

Naturally, I worry about a bear market (down 20%) for the stock market.  There are many components to that particular distant-early-warning system, such as the "death cross" when the 50-day moving average crosses below the 200-day moving average.  Or, the A/D ratio of advancing stocks compared to declining stocks.  I know those distant-early-warning signals and follow them.

Everybody is always worried about recessions, it seems.  This is the least of my worries.  Unless sparked by a financial crisis, a recession is usually visible far ahead of time.  There are many, many economic indicators, maybe too many, which just confuse investors.  For most investors, minor recessions are best ignored.

But, what is the triggering data-point for a political crisis?  Is it when the impeachment paperwork is filed?  (Make no mistake:  an impeachment is a grueling, painful experience for everybody!)  Is it when China announces a ban on U.S. imports?  Is it the first time the President deploys our military?  Or, the second time?  Is it when a blue state like California files for succession?  Or, is it when a red state like Texas files?

I'm searching for useful triggers . . . any suggestions?

Saturday, February 4, 2017

Gonna soak up the sun . . .

Existentialists view death as the ultimate fraud.  They fear boredom before death far more than death itself.

Sheryl Crow is a superbly talented musician and singer.  She has been quite successful, with an estimated net worth of $40 million.  At 54, she still retains that certain hard athletic beauty.  She has long been one of my favorite performers.

I attended a performance tonight and was no more than ten feet away.  While I enjoyed her performance immensely, it was difficult to ignore her boredom in singing songs that made her wealthy ten to twenty years ago.  She seemed to be on automatic-pilot.

An investment strategist wakes up in a new and different world every day, with a new set of tea leaves.  There are new economic reports and corporate announcements to absorb.  There is no reason nor time for boredom.

Should I feel sorry for Sheryl?

Friday, February 3, 2017

Brit Thoughts

David Cameron was Prime Minister of Great Britain from 2010 until July of last year, when he lost the Brexit vote and resigned.  I attended a lecture of his yesterday and took away the following thoughts:

1.  He is not worried about England following the Brexit vote, just sad that the many impending inconveniences are so unnecessary.  (He is worried about losing some of the financial sector, which is so huge in London, and may migrate to the Continent.)

2.  He is not worried about the continued existence of the European Union, unless Madame LaPen wins the French election later this year.

3.  He is worried about the chaotic and unpredictable growth of populism worldwide.  In its zeal to "break everything and start over," the cost of breaking everything is not considered, in either money terms or human terms.

4.  He felt one of the great honors of being Prime Minister was delivering a weekly update to the Queen, whom he obviously respects and appreciates.  He pointed out that, as Queen, she has met 25% of all American presidents in history, which speaks to the length of her reign.

5.  He played golf with Obama and was glad he did.  He declined the opportunity to go hunting with shotguns in the Russian forest with Putin and was glad he did.  He obviously trusts Putin very little.

I already had great respect for him, but after being in the same room with him, I got the sense he is also a "nice guy."  It would be an honor to buy him a pint! 

Wednesday, February 1, 2017

Smartest Guys Somewhere

There are those who think the legendary investment house of Goldman Sachs has "the smartest guys in the room."  I am not one of those.  However, I do think their research department has "the smartest guys in Goldmen Sachs."  Their research is always thoughtful and generally well-written!  Here are five thoughtul quotes from their latest research:

1.  The resilient US expansion may get a nudge from fiscal stimulus and infrastructure spending, though US trade and European electoral risk may be noticeable counterweights.

2.  Global inflationary pressures appear subdued, but price pressures are unfolding in the US amid market expectations for sizable fiscal stimulus and a shrinking output gap.

3.  Despite the likelihood of rate hikes in the US, we expect policy to remain supportive globally. (That means low rates.)

4.  From the US Republican sweep to upcoming European elections, we expect macro risk to be amplified by unpredictable political outcomes.  Populism has proven difficult to size and price.

5.  Besides global politics, we are watching other persistent risk sources, the pace of US rate tightening, the sustainability of the Chinese recovery, and corporate earnings.

In other words, they see no recession in the near future and are worried what damage politicians might do, here and abroad . . . but who isn't?

Sunday, January 29, 2017

Dow - Twenty or Thirty Thousand ??

Barron's is a highly-respected weekly news-rag.  The cover article on their latest issue proclaims:

NEXT STOP:  DOW 30,000

Inside, the article begins with:

The Dow hitting 20,000 was no fluke.  Today's stock prices are well supported by solid prospects for corporate earnings and economic growth.  In fact, if President Donald Trump can avoid stumbling into a trade war - or a real war - there's no reason the Dow Jones Industrial Average can't exceed 30,000 by the year 2025.

First, it reminded me of Warren Buffett saying . . ."We always live in an uncertain world. What is certain is that the United States will go forward over time."

Then, I focused on the word "IF" -- IF President Donald Trump can avoid stumbling into a trade war or a real war.  That is not a snarky comment about the new president.  That is a concern that rapid change increases the odds of sudden mistakes.  That is also a reminder to investors not to get out of the market too soon.  Undoubtedly, sooner or later, President Trump will make a mistake - every president has - and the stock market will "howl bloody murder."   How should an investor react?

IF you are a long-term Buffett-style investor, you will sell nothing and try to buy more stocks as their sales prices decrease.

IF you are a timid investor, you will sell everything and undoubtedly miss the inevitable rally.

IF you are a normal investor, your level of cash will loosely reflect your level of anxiety.  As you lose more sleep, you should increase cash . . . but there is never a good time to be 100% cash.  

Most of all, avoid the company of timid investors and get ready for Dow 30,000 . . . someday.


Saturday, January 28, 2017

Slow and Steady . . . ?

The Commerce Department has just released their first estimate of GDP growth during the fourth quarter, showing a 1.9% annualized rate, which is about what was expected.  Although this is down substantially from the Q3 growth rate of 3.5%, it was expected that 3.5% was an aberration, due to agricultural imports.  For full year 2016, however, GDP growth was about 2.1%, which is also the average for the last seven years.

Two things struck me as interesting in this report.  Our average growth rate of 2.1% is the slowest GDP expansion since World War II.  It is also the longest expansion since then.  Is there a relationship between these two facts?  Does fast GDP growth shorten the business cycle between recessions?  There has been precious little economic research on this, primarily because it is so difficult to control exogenous variables.  But, I still wonder . . .

Also, is 1.9% the most meaningful number to gauge GDP growth in a period of strengthening currency?  As the dollar strengthened during Q4, American-made products became more expensive for foreigners to buy and, therefore, exports fell.  Conversely, a strong dollar makes foreign-made products cheaper for Americans to buy and, therefore, imports to rise.  Without the resulting huge trade deficit, our GDP would have grown a whopping 3.6% -- very close to Trump's promise of a 4% GDP growth rate.  (He is already on-the-record for saying the dollar is too strong, making him the first president to ever say such a thing . . . but he is right!)

Bottom Line:  our economy is stronger than the stated GDP growth rate of 1.9%, but does that therefore shorten the business cycle and hasten the inevitable next recession?  I think not!

Thursday, January 26, 2017

New Pejorative?

Like most people, I've been called a few names, including some colorful four- or seven-letter names.  Now, I've been called a "globalist" - someone who supports the notion of globalization.  I didn't know that word was a pejorative, but I will wear it with pride!

.25 or 20,000 - Part Two

For my thoughts on the Dow reaching 20 thousand, please read the blog of December 15, 2016.

It took a few extra weeks to get there, but that is a good thing, not a bad thing.

Wednesday, January 25, 2017

New Economist In A New Job

Peter Navarro is a brilliant Harvard-educated Democratic economist that has been picked by President Trump to direct the newly-created National Trade Council.  After running for office three times without success, he made the prudent move into appointee politics.  He is also the author of Death By China, which warned of war with the Asian giant, both militarily and economically.

Most economists support the notion of "free trade" and globalization, and so does Navarro, but he sees it as something that works in theory but not in practice, because it is so badly administered.  While nobody will argue there is no room for improvement, the current approach looks like a heavy-handed approach to brain-surgery.

Press reports that Mexico and Canada are open to "updating" NAFTA offer a definite WIN for the President and Navarro, but the devilish details won't be known for a long time.  He also feels multi-lateral deals are less effective than bi-lateral deals.  In other words, it would be better to negotiate new trade deals with each nation individually than to negotiate one deal with a group of nations, such as Europe. Bi-lateral deals allow nations to "arbitrage" trade differences between trading parties.

He is certainly impressive and qualified, but I am concerned he may know more about economics than he does negotiation, and that he may be "obsessed" with China.  Let's give him the benefit of the doubt and wish him well.

Tuesday, January 24, 2017

Doll Thoughts

One of my favorite thought-leaders is Bob Doll of Nuveen Asset Management.  He maintains a strong hold on the long-term perspective and is not prone to panic.  His latest commentary contained the following:

1.  Corporate earnings are increasing nicely.  Consensus forecasts for this quarter is a 6.4% increase.
2.  Weekly unemployment claims hit a 43-year-low last week.
3.  Because most new presidents stumble when first taking office, eight of the last eleven new presidents have experienced a fall in the stock market during February, averaging a 4% drop.
4.  Increased policy uncertainty is a drag on the market, and the president's ambitious agenda is likely to increase this policy uncertainty, because it is not likely the Administration can move on so many fronts in short order.
5.  He retains "pro-growth, pro-risk" investment approach, and I agree!

Monday, January 23, 2017

Death By Spin

When I was doing graduate work at the University of Dallas during the last century, I met a fellow student that I've always remembered him as the "cheerful intellectual," because he wrestled with both facts and truth so optimistically.  He had been a high school math teacher and debate team coach in his prior life, but debate was his true love. He felt about debate the same way some people feel about art or fine wine.  Thankfully, he also taught me some of the rules of debate, such as:

1.  Know everything about the subject matter.
2.  Never interrupt, as windbags will be assessed a penalty by the judge, not you.
3.  Facts can only be stated twice - once during the argument and once in the closing.
4.  Emotions are permitted only in the conclusion.

I talked with him last week and could not resist asking what he thought about the presidential debates, and, as expected, he responded with "what debates?"  He explained that there hasn't been a real, presidential debate since Bush I and Clinton in 1992.  Since then, he said, debates have been killed by spin.  During a real debate, arguments can be mistaken for spin, but there is a difference.

Political spin is more often talking points tinged with emotion and posing as half-truths and repeated endlessly.  If you cannot defend a statement, don't debate it . . . just keep repeating it.

Today, the "cheerful intellectual" has more interest in fine wine than debate, and that's sad!

Thursday, January 19, 2017

Remembering the "War on Inflation"

In June of 1981, I was backpacking the Chisos Mountains along the Mexican border.  In those days, there was no news in the backcountry.  Cell phones were still unknown.  However, when we got down, I learned the then-Fed Chairman Paul Volcker has raised interest rates to a record high of 20%.  I knew that made a recession inevitable, and, sure enough, we experienced the recession of 1981-2, when unemployment rose to 10%.  Volcker was pilloried in the press.  Farmers blocked C Street in Washington with their tractors in protest.

Volcker did this because inflation had reached 14.8%.

Tuesday, the latest CPI inflation numbers from December showed inflation had spiked up from nothing to an annualized 3.6%.  Suddenly, there is concern that Yellen will start raising interest rates recklessly.  Even President-Elect Trump has warned her not to be reckless.  That's ridiculous!  Headline inflation is still only 2%.

It was only a year ago that we were worried about deflation, which is a much more difficult problem to control.  The slight "spike" we just saw reflects the increased fuel costs from gasoline and not much else.  There are those who expect four interest rate increases this year.  It ain't going to happen!


Humorously, I have to note that Tuesday's report speaks at some length about the widening difference between eating at home and eating in restaurants.  Of course, I will bring that up the next time my wife wants to go out for dinner . . .

Wednesday, January 18, 2017

Bye-Bye Bump

I predicted that the market would continue rallying until the inauguration, which is typically a time of good feelings, before reality spoiled the party.  Instead the party was spoiled at least two weeks early.  Maybe, it was just catch-up time for a party that go ahead of itself.  Maybe, it was the realization that Congress will hug the tar-baby of Obamacare, before fixing the Internal Revenue Code or stimulating the economy with infrastructure spending.  Or, maybe, the typical good feelings surrounding the peaceful transfer of power are already exhausted?

The President-Elect enters the office with the lowest approval rating in memory -- only 40%.  I also never recall a President or President-Elect saying the dollar is too strong.  While I agree with that, I've never heard a US leader actually say it.  It is a clear call to the Fed to stop raising interest rates.  It is also a clear message to the Chinese that we can and will cheapen their our currency, just as the Chinese do.  So much for letting "the market" decide on the currency exchange rates?

The "Trump Bump" is over slightly sooner-than-expected.  Now, it is back to normal . . . darn it!

Monday, January 16, 2017

You Are Cordially Invited . . .

. . . to view our new website at www.baycapitaladvice.com

Okay, okay . . . this blog is not yet linked to the website, but you'll get the idea anyway!

Your thoughts would be appreciated!

Greed in a Bull Market

An ancient Chinese proverb by Tao Te Ching says "change your thoughts -- change your world."  Nowhere is that more true than the area of finance called behavioral finance.  Your attitude and assumptions toward money and investing have a huge impact on it.

The best known example is during bear markets, when investors panic and sell out, which is a mistake!  If your total portfolio was worth a $100 at the peak of the bull market but only costs $50 now at the depths of the bear market, doesn't that just mean you need to invest more?  Is the pain of seeing daily market values so great that you'll pay anything to end it?

But, bull markets cause just as much consternation for some investors as bear markets.  In a bear market, you're afraid of losing more.  In a bull market, you're afraid of not making more.  The investor moves from fear in a bear market to greed in a bull market.

If the Dow went up 8%, why didn't my portfolio go up 8%?  First, 40% of the growth in the Dow after the election was due to Goldman Sachs.  Without that one stock, you would not have come close to 8%.  And, why don't we own that one stock?  Maybe, because we avoid money-center banks, due to their books of derivatives.  That is a risk that should not be taken.  But, who cares about risk, when the sun in shining?  Instead of asking how much profit did I make, try asking how much risk did I take?

More importantly, the Dow is only of many market indicators.  That are only the 30 largest U.S. companies in the Dow.  Why not the broader S&P 500?  Nasdaq usually outperforms both of those.  And, since 52% of corporate profits come from abroad, shouldn't you compete against that index as well?

Maybe, greed creates myopia?  Changing your thoughts fixes it!

Sunday, January 15, 2017

2016 - In - Review

My quarterly column for Inside Business has been released, and you can read it here:

http://pilotonline.com/inside-business/news/expert-column-as-election-years-go-a-predictable-one/article_b7fab3e0-cbdb-5790-9cd6-ba5b16990d68.html