Trading Signal
For Stocks
There is no change to our trading signal this week as the techinicals and fundamentals for stocks remain favorable.
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Market Performance
As Of Friday April 20, 2012
S&P 500 Index
Performance For Proprietary Investment Models
CWM Income Bond Fund Model
+1.09% YTD 2012
+3.88% 2011
+7.79% 2010
+22.74% 2009
+1.24% 2008
+6.30% 2007
+3.75% 2006
-1.21% 2005
+5.54% 2004
+9.08% 2003
+6.64% 2002
-0.14% 2001
+1.97% 2000
CWM Global All Cap Dividend-Only
Stock Model
+5.983% YTD 2012 -0.02% 2011 +38.15% 2010 +91.34% 2009 -14.97% 2008 +24.08% 2007
+20.13% 2006
+16.28% 2005
+28.39% 2004
+75.01% 2003
-9.95% 2002
+22.87% 2001
+19.97% 2000
CWM Emerging Markets Stock Model
+3.262% YTD 2012 -14.56% 2011 +30.88% 2010 +104.83% 2009 -14.41% 2008 +53.77% 2007
+50.32% 2006
+7.83% 2005
+11.15% 2004
+94.42% 2003
+115.99% 2002
+15.79% 2001
+1.20% 2000
All fees are net of advisor fees. Past performance does not guarantee or imply future results.
Some results from a back test.
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7.5% Annual Income Is Available Today
 If you have cash sitting in a money market or savings, more than likely you are getting next to nothing in interest from your local bank.
If liquidity is not a concern, we have access to a Private Debt Fund that is part of the fixed income asset class (i.e. bonds) that is currently paying 7.5% per annum and is adjustable when interest rates eventually rise. FUND HIGHLIGHTS 7.5% Annual Rate (Adjustable) $5,000 Minimum Registered with the SEC 5 to 6 Year Maturity Hedge Against Higher Rates Hedge Against Inflation If interested, please give us a call today to find out more about this opportunity.
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Quote For The Month"Life would be infinitely happier if we could only be born at the age of eighty and gradually approach eighteen.
-Mark Twain |
Don't Allow Your 401(K) Plan or Annuity To Be Unmanaged
Do you have a 401(K) plan and/or annuity sitting there doing nothing?
Are you confused as to which funds are the best to invest in at this time?
Now is not the time to Buy & Hold in the current market environment.
We Can Help!
Whether you are currently employed or retired, we have dozens of actively managed 401K and annuity models deployed and we can customize a model to fit your company's existing 401K plan as well.
Contact us for more details about our actively-managed programs to put your money back to work.
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Do you have multiple Financial Advisors managing your investments?
In this day and age it's common for many investors to have their investments spread across several financial advisory firms.
If you are one of those folks you should know that we provide a service, at no charge to you, that will summarize all of your investment holdings on one (1) simple report so that you can see how all your investments are doing.
If you're interested in participating in this free service give us a call or shoot us an email to get started today! |
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- Of the (3) major U.S. indices (Dow, S&P 500, and NASDAQ), the Dow Jones posted the strongest numbers for last week rising +1.4% over the last (5) trading days. However, the NASDAQ continues to post the strongest Year-to-date (YTD) gains. On the year the Dow is up +6.64%, the S&P 500 +9.62% and the NASDAQ +15.17% thru last Friday.
- The last few weeks for commodities have been non-eventful as there hasn't been much of a rise or fall in price across the board. However, with respect to crude oil, there was some encouraging news that came out last week in the futures market where the summer futures price for a barrel of oil is lower than today's price - currently at $103.88/bbl. That means to us as consumers, barring any unforeseen calamity, that investors are anticipating the price of oil to drop over the next 3 and 4 months. Stay tuned...
- Rising layoffs, falling home sales and slowing manufacturing are beginning to spark fears that the economic recovery is headed for a springtime stall for the third year in a row. New data that came out last Thursday provided fresh evidence that the job market is losing momentum.
- If you're in need of a good laugh, we recommend that you check out the video that we've posted in the "Video of the Week" section of this week's newsletter.
- We have two (2) trades heading into week. One buy and one sell. Refer to our "Trades For The Week" section below for more details.
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Beware of the Volatility Trap
In response to the recent spike in volatility these past few weeks we thought this week would be a good time to talk about what is often referred in the financial markets as the Volatility Trap and how to avoid it as an investor.
If you read this column with any regularity you may remember a couple of weeks back we wrote about the psychology aspect to investing and how we, as human beings, are not adequately wired for investing. If one is not careful it becomes rather easy to fall into the aforementioned trap and miss out on large near-term returns. Is High Volatility A Bad Thing? The short answer to this question is, it depends. Sometimes a large degree of volatility, like we saw last year in 2011, where stocks gyrated back and forth like a yo-yo - up +300 points on the Dow one day to only be down -400 points the next - was not healthy. Why? Because no sustainable trend was allowed to develop making it very hard for investors to make any money.
Of course, because of Greece and Europe's debt problems, you had investors in 2011 over-reacting week-to-week on headline news rather than following the fundamental and/or technical data for stocks. Like all things, however, the markets calmed down in late 2011 and "normalized" or reversed back to the statistical mean.
In some cases, above-average levels of volatility are a good thing. There is empirical evidence from study after study that suggests that it's sometimes better to run into, not away from, volatility when it comes to stock investing. For some investors this may sound counterintuitive. However, the statistical data from all of the past bear markets is proving this to be the case! The key is being able to recognize when to run into or away from the volatility! Below in Figure 1 is an illustration of the Volatility Trap which captures the dynamics of market volatility and return over time. Time zero, the present, separates the recent past (the left side of the figure) from the near future (the right side).
Courtesy of AthenaInvest
While the stock market in 2011 went through a period of high volatility and below-average returns, the right side of the graph represents a near future in which volatility is typically lower and market returns are above average. The emotional reaction to whipsaws in volatility often times ends up luring most investors into this trap.
While it is not the easiest graph to read, below (figure 2) is another chart that shows the annual 13-week average, weekly standard deviations (a measurement of volatility) from 1928 through 2011 and illustrates which year was the most volatile.
Courtesy of AthenaInvest
If you were not able to make heads or tails of the above graph allow us to summarize it for you. The 1930s experienced the worst market volatility since the history of the Dow Jones Index (116 years), with every year at or well above the long-term average of 2.16%. No real surprise there!
Volatility then declined somewhat during the 1940s, 1950s and 1960s. From the 1970s on, weekly volatility reached a higher plateau with 1974 and 2008 being the worst years since the '30's. As crazy as the volatility was in 2010 and 2011, both years still pale in comparison to the degree of volatility that we saw in 2008.
How Do You Know When To Chase Volatility or Run Away From It? What we do know is that the Volatility Trap is mostly driven by the empirical observation that when investors have suffered increased volatility and lower or even negative returns, the probability is high that future volatility will most likely decline and market returns will often follow with above average returns. After all, from a statistical perspective, abnormally high volatility must at some point revert back to the mean to more reasonable levels, just as below-average returns must also eventually rise back up to the mean. The trick with this is that the Volatility Trap does not have a specific time frame. Thus, there's no one-size fits all template that you can refer to. The period for a Volatility Trap can last for weeks, months or even years. Rather, it requires the investor to not only possess the technical expertise of recognizing a Volatility Trap but also the technology or software to crunch the numbers within the computer model that will provide them with reliable trading signals to get in and out of market patterns with a high degree of success. The Cyclical Bull Market of 2009 As strong as the urge may be to bolt the equity markets when volatility is high, we would argue that the best course of action under certain market conditions is to actually stay the course with your stocks or even increase your equity exposure. If the investor falls into the Volatility Trap by abandoning the stock market due to an increase in volume or volatility, they compound their misery by missing out on higher future returns. As case in point, all one has to do is look back as recent as May 2009. After the wealth destruction that occurred from August 2007 to March 2009 most investor's portfolios had been decimated by the crash in stocks and were sitting on the sidelines in cash when stocks took off like a rocket beginning on May 9, 2009. In less that seven (7) months the S&P 500 had risen by approximately +57%. Unfortunately, many investors missed this rally because of what they had just gone through, psychologically and economically, for the prior year and a half. Summary While all of this may sound good in theory it certainly isn't always easy to execute. Based on our experience, there are three (3) primary reasons why investors struggle with the Volatility Trap. The first we already discussed. That being, the Volatility Trap has no time limit and many investors do not have the patience to wait for the trap to run it's course. After all, it requires a strong stomach to get back into the markets after valuations have lost quite a bit of money and "stay the course" when it may appear on the surface that stock prices could be going lower again.
The second reason is that, because of time and cost, the lay-investor does not usually have the same cadre of tools at their disposal, as a professional money manager has, to recognize the applicable signals of when it is safe to run into the burning building, per se, or run away from it to fight another day.
Last, but certainly not the least, we are not wired, emotionally, to be efficient or good investors. We tend to put too much emphasis on emotion when it seems as though everyone is running for the hills, per se. During such tumultous times it can appear to be foolish to not be following the herd whichever direction they are going. However, experience tells us that there are times when it pays to not follow the herd and the Volatility Trap can be one of those circumstances. In the final analysis, the Volatility Trap is one daunting aspect to the financial markets that illustrates why it helps to have a neutral, third-party professional who can objectively make these decisions for you. It's one thing to recognize the trap and embrace volatility by running into a burning building, per se. It's a whole other thing to do when it involves your own money.
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In The News...
Berkshire Hathaway Betting On An Upturn in Housing Demand...
Ron Peltier, the executive building Berkshire Hathaway Inc. (BRK/A)'s real-estate brokerage by acquisitions, said he expects a rebound in U.S. home sales as banks liquidate seized properties after settling foreclosure-misconduct claims... "The banks still have very large numbers of distressed or foreclosed real estate inventory," Peltier said. "They are now going to be making those properties available, and given the low inventories across markets, it's probably a good time to be selling."...Berkshire, led by Chairman and CEO Warren Buffett, is adding to housing-related businesses as the company prepares for an eventual end to the slump. Minneapolis-based HomeServices agreed in the last two months to buy brokerages in Connecticut, Oregon and the state of Washington. Peltier said he will seek further deals and plans to enter the Northern California market within two years. Bloomberg Article Are Some Brick and Mortar Companies Becoming Irrelevant?
The recent online start-up company, Instagram, was bought recently for $1 billion by Facebook. At the time of the acquisition Instagram had 13 employees and was 551 days old. By comparison, the New York Times was founded in 1851 (162 years ago) and has a $950 million market capitalization and 7,273 employees.
Mohamed El-Erian, The Co-CIO From PIMCO, Used the Weakness in the Most Recent Economic Data To Send a Warning to Washington D.C."After a period of relative calm, Friday's employment report should again sound alarm bells in many parts of Washington. The combined risk of an unemployment problem that is increasingly structural in nature and a rate that is bottoming out way too soon is bad news. It is the last thing America and, more broadly, the global economy need, especially at a time when Europe remains fragile.
The hope is that Friday's report will act as a catalyst for a renewed initiative on the part of congress and the administration to lift the impediments to growth that have been repeatedly identified yet never suitably treated. More likely, however, is that political bickering and dithering may again deliver a depressingly familiar seasonal pattern that undermines the wellbeing of millions and renders the subsequent recovery even more difficult to secure." Financial Times Article No Weakness Here...
Per the Financial Times, "Monthly Sales Surpassed 1.4 Million Units for the First Time Since August 2007."
The U.S. motor industry recorded its best monthly sales for nearly five years in March on the strength of a brightening economy and pent-up demand.
Jamie Dimon, CEO of J.P. Morgan Chase, as written in the 2012 Annual Report
"I suspect that the mortgage crisis will be the worst financial catastrophe of our lifetime. What the world experienced was almost a collective brain freeze...We need to write a letter to the next generation that says, 'Never forget: 80% loan to value and verify appropriate income.'" Wall St. Journal Article In Many Metro Housing Markets, The Buying vs. Renting Decision Is Now Becoming An Economic Choice Monthly payments on a house are now cheaper than monthly rents on a similar house in most of North San Diego and Southwest Riverside counties, according to an analysis of county-supplied and Realtor data by the North County Times.
Buyers who put down 20 percent of the cost of a median-priced house and pay 3.9 percent interest on a 30-year conventional loan will have a lower monthly mortgage payment than the median house rent in 23 out of 34 North County ZIP codes. Some home buyers get loans backed by the Federal Housing Administration (FHA), allowing them to make a 3.5 percent down payment, which means they pay more in monthly payments.
Despite that, those homeowners are still paying less than rent in half of all North County ZIP codes. No one really knows how long this unusual market will persist.
Already a shortage of listings is creating bidding wars that could propel prices up, but the key to the trend is sub-4 percent interest rates, according to Nathan Moeder, a principal at The London Group in San Diego.
Los Angeles' 10,000 Page Environmental Impact Report Cost 27 Times the Original Construction Cost of the Green Bay Packer's Lambeau Field
If you're a fan of professional football you can appreciate this.
The aforementioned report, which took two (2) years to complete, is a milestone on the way to luring back an NFL team to Los Angeles, which lost both the Raiders and Rams in the 1990's. After a 45-day public comment period, the report goes to the City Council. It also could face legal challenges but Tim Leiweke praised the completion of the $27 million report, which he called ''the world's most expensive piece of paper.'' Fox Sports Article And just ahead of the Facebook IPO... It seems that close to nothing these days is off-limits when it comes to social networking. There's a new Walgreens Facebook Plugin that allows users to see what prescriptions their friends are picking-up at their neighborhood drug store.
DEERFIELD, IL-In an effort to enhance its social media presence, Walgreens pharmacies announced Wednesday the launch of "RxSocial," a new Facebook plug-in that enables users to "view, share, and comment on" the prescription drugs their friends are taking.
The Onion Article |
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Tale of the Tape
The equity markets continue to remain stuck in a sidewise trading pattern. On Friday of last week the key level for the S&P 500 Index was a close above the 1,393.80 level. If the index had closed below this number the probability is high that we would see further downward pressure on prices heading into next week.
Fortunately, the S&P 500 closed out last week at 1,398.08. The good technical news indicates a strong probability that the equity markets could move back into the upper end of the range between the 1,421 to 1,427 levels in the coming weeks.
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Video of the Week...
A Microsoft Parody On The Google Heads Up Display (HUD) Glasses Project If you are in need of a good laugh we highly recommend that you watch the short YouTube video (posted below) regarding a Microsoft Parody to Google's yet-to-be-released heads-up-display glasses. We got a kick out of it! GOOGLE'S HUD GLASSES PROJECT 
MICROSOFT'S ANSWER...  | | Windows Project Glass: One day too... |
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Trades For The Week
There are (2) trades this week in our proprietary investment models. One sell and one buy.
Global All-Cap Dividend-Only (GACDO) Stock Model
We've received a sell signal for our holding in the Argentina online commerce firm MercadoLibre (ticker symbol MELI). After making the sell, we will only be long in (4) of the (13) eligible stocks in this model.
The model remains up +5.983% YTD.
Income Model (Bond Funds)
No trades this week. The model is up +1.09% YTD. Emerging Markets Stock Model We've received a buy signal in the model for a small capitalization Peruvian mining company. After making the buy, we'll be long in (9) of the eligible (20) stocks in this model.
The model is up +3.62% YTD. Commodities There are no new trades for next week. Shorts There are no new short trades nor do we own any shorts at this time.
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