Archive for the ‘Market Commentary’ Category

Below is a third party commentary about current market conditions written by one of LPL’s Chief Economists, Jeffrey Kleintop.

Summertime Blues – LPL

I’m writing to update you on recent changes we’ve made to client portfolios, where we have discretion, and to discuss both our rationale and where we’re probably headed from here. 

As you know, last month we sold a defensive moderate allocation fund – partly to help protect against a nuclear and market meltdown and partly to reposition into an investment with more opportunity.  When it became apparent Japan’s situation was stabilizing, we completed the repositioning into a Recovery and Infrastructure position that invests in companies of all size, both in the U.S. and abroad.  While the rebuilding required because of Japan’s Tsunami and Australia’s Floods is an obvious reason to invest, one of our primary reasons may not be.  We wanted to increase exposure to the rapidly growing infrastructure of the developing markets without having such direct exposure to their somewhat volatile economies and companies.  Developing markets are projected to continue to lead a global recovery, but we felt a more conservative approach was warranted – especially given the headwinds we face today. 

Headwinds?  Yes, like speculators pushing oil prices higher and from diminished spending/stimulus by the U.S. Government as we battle over the speed and direction of getting our fiscal house in order. 

Which brings me to our second portfolio adjustment.  Last Friday we exchanged our commodity position for an ultra short term, high-quality bond position.  Because the commodity position was heavily weighted towards energy, we felt the timing was right to take profits and to safely rest, temporarily, on the sidelines.  What motivated us?  Goldman Sachs announced they were expecting about a 20% decline in the price of crude.  They felt speculation, not demand was pushing prices.  We all know consumers can’t afford gas at $4 or $5 per gallon and still have much left over for discretionary spending.  And when the Saudis cut production last week, citing a real drop in demand, we felt it was time to take profits until fundamentals were restored. 

So what’s next?  Fortunately prices are starting to fall.  It may take a month or longer, but we’ll be patient and re-enter our position when we have conviction that global demand is driving prices.  Ironically, prices are also being pressured by the spending cut battles and the recent S&P changes to the U.S. debt outlook – from stable to negative.  The International Monetary Fund (IMF) also recently suggested that U.S. deficits could pose a real threat to Global economic growth.  So headwinds  – yes -but ones that I hope blow us back on a more sustainable course of moderate prices and moderate growth.  Markets have been resilient because jobs and consumer spending are moving in the right direction.  If we can get prices and government spending into a more fundamentally sound place, things should continue to improve for everyone – including our Minnesota Twins!

Donald J. Miller, CEO, CFP®

LPL Registered Principal     

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.

We are writing in regard to the recent market developments.  First and foremost our thoughts and prayers go out to the people of Japan.  Obviously the markets have reacted negatively to not only Japan’s challenges, but to the ongoing difficulties in Libya and Saudi Arabia.  In addition to current events, more potential problems lie on the horizon in Japan and elsewhere, but with that said, there are also positives brewing.  Oil is off its recent highs, which is likely to result in lower gas prices at the pump and last week’s economic data highlighted a 1% surge in February retail sales.  Yesterday the Federal Reserve Board commented on recent market events and reiterated that the recovery is on firm ground, labor market conditions continue to improve and that household spending and business investment are up.  They also plan to continue with “Quantitative Easing 2” as planned when initially announced in November.  

What are we doing to deal with these market conditions?  Where we have discretion, we have already sold one of our moderate allocation positions which has held up well during the last week.  By putting these monies in cash it will allow us to deal with both negative and positive market conditions.  We were planning on repositioning this in the near future anyways, but thought it prudent to conserve the profits we’ve made in the position over the past year.  As many of you know, we also sold a corporate bond position recently.  This was in anticipation of potentially higher interest rates and to lock in the gains made.  This position is also in cash currently.  Given the recent events, we believe having cash provides an opportunity to conserve capital now, and be opportunistic, as things improve going forward. 

In closing, we express our deepest condolences to the Japanese disaster victims and their families.  As a company, we plan to direct our annual gift toward relief agencies that will be helping to support the people of Japan.  As always, feel free to contact us with any questions. 

Jim

I’m writing to you today to update you on world and political events and their impact on the markets.  I’m sure many of you have been watching the nightly news and are concerned about the unrest in the Middle East.  With the overthrow of Egypt’s Government and the fighting in Libya and other places, everyone is wondering what’s next and where oil prices are going. 

While difficult to watch, we view this situation as a positive in the long-run, if it results in greater democracy.  But, democracy and change are messy and change creates uncertainty.  Of course, markets hate uncertainty.  The situation could however be a real negative if Organization of the Petroleum Exporting Countries (OPEC) output is disrupted.  That’s the real concern behind the recent spike in the price of oil and at the pumps.  In our opinion however, the situation in Egypt is of far less concern than the protest in the OPEC-producing countries.  However, since Libya is only a 2% supplier to the global oil marketplace, and the Saudis have committed to cover any shortfalls the market experiences, we feel that the recent spikes are temporary.  So yes, the spike in oil, the jump in gold prices, the pull back in stocks, and the flight to safe havens in US Treasury are likely overreactions that we think will dissipate as the situation resolves itself.  We are watching carefully however because sustained oil and gas price hikes are probably the Achilles heel of the US consumer.  They are still vulnerable because their biggest asset – home equity – continues to be under pressure.

As if these concerns weren’t enough, we have another issue brewing that may be of more significance — aggressive spending cuts also known as “austerity mentality”.  The recently elected Republican majority in the House has declared they have “promised” and have been “mandated” to reduce federal spending by $100 billion in this current budget.  They, in fact, have passed a bill to cut spending by more than $60 billion. Last week Goldman Sachs predicted that if enacted, those cuts would reduce Gross Domestic Product (GDP) by half for the upcoming year — and “Tea Party” members have said $60 billion is not enough.  Because a measure to increase our debt ceiling to keep the US Government paying its bills is approaching, the House majority has more leverage on this issue than usual.  Do we think they will shut down the government?  No.  Are we worried that spending cuts could leave the economy and consumers vulnerable?  Yes, especially with such a weak housing market.  We support fiscal sanity and responsibility.  That shouldn’t surprise you coming from your financial advisor.  But, while we feel we’re moving in the right direction, we’re concerned about hitting damaging speed bumps if we go too fast.  Recently released fourth quarter GDP was reduced because of lower state and local spending.  We’re also concerned about the pressures to politicize the issue given an election year fast approaching.  In the end we believe our elected leaders will do what’s required because they’ll once again have no choice.  However contentious and uncertain times are ahead. 

So how are we positioning your portfolios?  Very carefully — while understanding markets will probably climb the wall of worry as global economies continue to expand. 

On a cheerier note, we have a couple points of pride to share with you.  For the third year in a row we have received the Five Star Best in Overall Client Satisfaction Wealth Manager Award.*   In addition we were listed by the National Association of Board Certified Advisor Practices — a nonprofit organization based in Colorado — as one of Minnesota’s Top Wealth Managers.**  Their special report was published in the February 18, 2011 edition of the Minneapolis Chicago Business Journal.  Of course we’re proud of the independent recognition, but rest assured we’re not resting on our laurels.  We strive hard every day to continue to earn your trust and confidence.  

In closing, you can count on us to keep in touch about noteworthy events — and to make adjustments to help manage both risk and opportunity.  Don’t be surprised by the positive events ahead of us.  Warren Buffet says that America’s best days are ahead. 

Thank you for allowing us to be of service to you.  We are here to answer any questions or concerns.

Don Miller

*Based on client satisfaction.  

**Based on 20 characteristics including years of experience, customer service model, risk and investment philosophy. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Dear Client,

I’m writing to update you on current events and portfolio changes we’ve recently completed. Mid-term elections have come and gone — finally. As expected there was a significant backlash by voters to what was deemed to be out-of-control spending. Clearly momentum has swung to the Republicans, but that also was expected. Mid-term elections usually go in favor of the minority party.

What wasn’t expected was the bipartisan support for additional stimulus — at least not so soon. The Democrats wanted to hold out for higher income and estate taxes on the wealthy and Republicans wanted to hold out for no more deficit spending or unemployment benefit extensions. But, the President has seemingly headed a bipartisan compromise to ensure that taxes will not be raised over the next two years and that unemployment benefits will be extended. With unemployment recently increasing to 9.8% it seems that all of our politicians have realized that a focus on job creation by giving Americans more money to spend is unfortunately probably necessary to ensure the US economy doesn’t slip backwards. The housing market is still going nowhere fast.

So what does this mean for your investments? Where are the opportunities? Where are the potholes? The most obvious expectation is for higher interest rates. Additional stimulus and deficit spending should lead to more growth and more borrowing. And the bond market, especially the US Treasury market, has seen higher yields and lower prices over the last couple of weeks. As you’ll recall we have already reduced bond holdings over the last couple of months. But, in anticipation of the tax relief/stimulus bill passing soon we have further reduced our exposure.

Recently we sold a global allocation position with large allocation to bonds and replaced it with three strategic managers. First, we focused on high-quality dividend paying US stocks. Profits should rise for US companies and there is an expectation that many of the recent dividend cuts will be restored in the year ahead. Next we hired an experienced global manager that has essentially no bonds. This manager has performed in line with our expectations in times of rising inflation and inflation expectations. Finally we added, to a lesser degree, a strategic bond manager with upside potential whether rates rise or fall. If a market trend or direction can be determined, then you can benefit from the trend – even if it’s trending down. Remember, where we have discretion, we have already begun to implement changes and where required are contacting you to do so.

In closing, I sincerely hope that you’ll have a wonderful holiday season and a prosperous New Year. It’s been a hectic and busy year for all of us and the markets. Tax law proposals and changes have compounded uncertainties and heightened volatility. In the year ahead, we expect a continuing economic recovery and hopefully smoother sailing. We, of course, will remain diligent and watch for potential storm clouds ahead.

Sincerely,

Donald J. Miller, CFP
LPL Registered Principal

Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values and yields will decline as interest rates rise and bonds are subject to availability and change in price.

September was a historic month for the US Stock Market — it was the best September in 71 years.  The fears of a double dip recession are fading and our clients’ accounts responded favorably.  After the significant declines in August, it should become obvious that being defensive is warranted, market timing is not.  The markets seem to be telling us that the short-term fundamentals are improving, but we know that significant long-term issues remain.  We expect this market to break out to the upside if November elections bring gridlock.  However, with the advent of the Tea Party, possibly siphoning off Republican votes, there is uncertainty.  We’re looking at reducing our bond positions by approximately 5% in the upcoming month.  We expect to increase our allocations to dividend paying stocks –essentially moving a little more towards neutral.  But, make no mistake, the mountain of debt accumulated by individuals and the US Government will continue to be a real drag on growth and employment for years to come.  It will also impact the real purchasing power of Americans as our deflation currency reflects our current debt situation as well.  So despite all the worlds Central Banks trying to keep interest rates near zero, we remain cautious.   Japan has had rates near zero for two decades and look where they’re at – struggling to say the least. 

As you probably know, we are continuing our series of premier educational events.  Our latest, in the Chicago area, was a combined client appreciation golf event and market update by Calamos.  We want to thank all the attendees for a fun and informative day and remind everyone that we’re posting the market update commentary by John Calamos, Sr. on our website at for your benefit and review.  They think it’s a Republican controlled house for sure. 

Finally, the latest in our educational series is scheduled for the Twin Cities on Thursday, October 21 at the Edinburgh USA Golf Club Ballroom.  Titled “Premier education.  Practical application.”  The event features speakers from PIMCO Global Asset Management and US Bank.  PIMCO will discuss the “new normal” economy.  We all know where we’ve been, but this widely respected and successful management company will tell you where we’re going.  Things have changed – and the implications are significant.  US Bank will discuss the challenges in the credit markets today and how to position yourself to improve your ability to access credit.  They’ll cover current rates and refinancing opportunities as well.  There is truly something in this event for everyone.  I’m not exaggerating when I say you won’t want to miss it.  Besides I’m springing for heavy appetizers and drinks to digest it all.  If you haven’t RSVP’d yet, please do so by email or call Sally Noel at 651-490-9790.  Remember this is a “bring a friend event – or two if you have them.”  They’ll get useful information and you can tell them that you’re providing refreshments — on me!

Sincerely,

 Donald J. Miller, CFP

LPL Registered Principal

As you know from our prior correspondence, we recently altered our portfolios and exchanged certain managers for others.  Today I wanted to provide you with some insight into exactly what we are doing and why.

First, because of softening economic data, falling consumer confidence, and significant market volatility, we made our portfolios more “defensive.”  We raised our target for cash and bonds.  In the near term, we feel that deflation is more worrisome than inflation and protecting capital is more prudent than exposing ourselves to high-levels of uncertainty (risk) in pursuit of higher growth. 

Next, we exchanged a mediocre performance manager for one that historically has had more consistent returns in today’s choppy environment.  We also replaced relative return managers for ones focusing on absolute returns.  The difference between the two is that relative return managers compare themselves to a benchmark.  Their job is to outperform it — even if it’s negative.  If it’s growth stocks, they typically will need to be invested in growth stocks most of the time.  In less volatile markets that generally are rising, these managers should be considered.  Over the past 12 to 15 months, they’ve done well.  An absolute return manager, on the other hand, usually has much more latitude on where to invest and when.  They selectively risk capital if they believe sufficient opportunity exists.  They might invest in growth stocks if the market has momentum, but they might “short the market” if it’s falling.  They are not tied to a benchmark; instead they are trying to generate positive returns — even if that means staying in cash and collecting interest.

So in English, we’ve replaced managers that go up and down with the market for ones that are better positioned even if the market falls or stays flat.  We feel the new managers can take a more defensive approach. 

That said, remember, we’re fine-tuning parts of a portfolio that already reflects our cautious outlook — not making wholesale changes.  We still feel that it’s folly to try and time the markets, but it is prudent to protect capital first.

That means we’re not on the sidelines.  We still feel that while growth has slowed significantly, we are not going to “double-dip” into recession again.   The odds are higher today, but it is still mostly avoidable. 

So, we hope this is helpful and not too much information.  It’s been suggested that corresponding more often, when things seem uncertain, is appreciated.  We hope you agree.

In closing, I wanted to mention that there is some tax relief available for college bound students.  The expanded and renamed HOPE Credit is available this year.  Called the American Opportunity Credit, it covers the first four years of post-secondary education, can net you as much as $2,500, and can be claimed by joint filers with adjusted gross incomes as high as $160,000 to $180,000.  If you fit the bill, make sure you give us a call if we’ve not already discussed it.  Also look for more information in the coming weeks from us on the financial reform bill.  As always, please feel free to contact us directly to discuss your thoughts.  Sally Noel is our new Client Service Manager and she’d be glad to help schedule a conference call if that helps.  We look forward to hearing from you. 

 Don 

The following disclosures are courtesy of our LPL Compliance Department. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and cannot be invested into directly. 

Stock investing involves risk including loss of principal.  Bonds are subject to market and interest rate risk if sold prior to maturity.  Bond values and yields will decline as interest rates rise and bonds are subject to availability and change in price. 

Greater Midwest Financial Group does not offer tax advice.  Please consult your qualified tax advisor.

Greetings, I hope all of you are enjoying what is shaping up to be a beautiful summer.

I wanted to update you on some recent actions we have taken and give you some insight into where we think this global recovery is at.  As I mentioned in our last blog/correspondence, we are cautious but optimistic.  U.S. jobs, retail sales and housing numbers indicate a “soft spot” in the recovery.  However, additional data has been released that we feel warrants us being more defensive.  Falling consumer confidence, the potential for a double dip in housing and policy risk are our major concerns.  This time it seems like the republicans, under the cover of no more deficit spending, appear to be thwarting attempts at additional stimulus.  While I’m a strong advocate of living within your means, timing could be poor to make a stand unless your timeframe was more focused on the November elections.

Remember I’m not taking sides, just reporting that things could get bumpy if the tracks need a little more grease and they get none because of political squabbling and posturing.  Eventually both parties will have to compromise and do what’s best for the economy.  They’ll have no choice, but timing is everything.

So what did we do?  We reduced client equity exposure.  We took profits in the consumer discretionary area.  Consumers are definitely holding back and who can blame them with so few jobs being produced.  We also reduced positions and managers that we thought were underperforming.  So what are we going to do next?  We’ll look for profitable ideas that are more defensive – remaining flexible enough to participate in growth when risks to the global economy have diminished.  Some clients need more guarantees.  Some need less volatility.  Everyone wants solid total returns.  Even though we feel we know each of you well, we’re always interested in your thoughts.  Please don’t hesitate to contact us with your questions or concerns.

Yes, I’m sad to report that the U.S. Soccer Team lost, but I’m proud of the way that they played.  The American Spirit is still alive!

Don

I am writing to provide you with yet another market update. Last week we continued our portfolio repositioning and saw some dramatic market volatility. Today I hope to provide you with some insight into both topics.

Friday we took profits in a balanced fund that is concentrated in growth stocks and convertible bonds. As always, we did this where we had discretion and/or were able to contact you where necessary. Our investment team decided that after the significant run-up in the NASDAQ that we wanted to reduce our large overweight in growth stocks and cash in on profitable convertible bond performance. We also achieved our objective of slightly reducing overall bond positions. As we and others have reported, we ultimately think that interest rates have nowhere to go but up.

We immediately repositioned cash into a well-known commodity strategy fund that is weighted towards the energy and food sectors. We believe last week’s positive job and retail sales reports support our’s and LPL’s view that a global recovery is continuing to gain traction. With the possibility that financial reform may curtail speculative derivative use, it appears that fundamental supply and demand are now more in sync and may potentially drive prices, in line with growth, over the next 3 to 5 years.

Which takes us to last week’s other events — major stock market volatility and the Greek debt crisis. First, let me say those events did not precipitate our decisions. We are not trying to time the markets. We decided two weeks ago what to sell and then calculated the correct way to execute it within client portfolios. The fact that prices for all assets came down quickly did nudge us to immediately reinvest into the commodity strategy fund. We think we have achieved a relatively good entry point.

Next, the Greek debt crisis is just a symptom of a larger problem; excessive spending and entitlement promises by many governments – ours included. As I said before, you can’t borrow indefinitely. And if you “can’t” default to creditors, then you can only default on promises to your citizens. The Greek riots and protests may well play out in other countries over the next decade as fiscal reality sets in. But, in the long run, these are good things that continue to support a slow and steady recovery. The fact that credit is being offered under more stringent terms and that demand for credit is slow to rebound means we probably won’t get too far ahead of ourselves for awhile. Things will continue to loosen up and jobs will be added slowly.  By the way, we’ve just added a recent St. Thomas business graduate to our professional team. You will probably be talking to Rachel soon if you’re scheduled for a review.