June 5, 2012
Confusion and Uncertainty Continue to Mount
How’s the Market Doing?
By Will Hepburn
Investors who have been reading this newsletter are probably not surprised that the bottom seems to have dropped out of the market recently. We have talked a lot in past issues about when – not if – worldwide economic problems would drag us down, too. It is finally obvious that our economy is slowing in reaction to events on the other side of the world.
I haven’t heard any analysts talk about problems in Latin America, but their markets, surprisingly pulled down by Brazil, are faring worse than any other geographic region over the past 3 months. Even worse than Europe where most countries are in deep recessions.
Much confusion is created in Washington, DC by the rosy economic numbers generated for the election effort, clashing with the stark reality of the reports coming from industry and trade groups.
Last Friday’s dismal employment numbers, coming in the wake of several months of positive, but heavily number-juggled reports from Washington caused a massive one-day decline in the stock markets – it’s like investors finally realized that the Emperor has no clothes.
If you notice, our lobby has the financial news station running on the TV, but the sound is always off. Listening to that stuff and trying to figure out what to actually do can make you crazy – and probably poor, as well.
I make my decisions based on hard data, not someone’s opinion. Our charts and graphs measure what the markets are actually doing not what people say they should be doing. I measure momentum and money flows, and whether they have reversed sufficiently to indicate a trend reversal. And they haven’t reversed yet, the trend is clearly down.
FaceBook shares dropped another 6% on Friday, (this is being written on Sunday, June 3rd). When history is written, the failure of this initial stock offering will be considered a bellwether for the market as a whole, right along with the Enron and Bear Stearns collapses.
This face plant by FaceBook means big trouble for Morgan Stanley who brought it to market. If they mis-valued Facebook by so wide a margin, it calls into question every other decision they have made for their clients. The lawsuits are already flying.
When considered together, Morgan Stanley’s problems along with JP Morgan’s very public losses last month plus a few financial hits to yet come as government bonds default in Europe, the financial services sector could be facing some serious headwinds for a while. It is hard to imagine the stock market recovering without being led by the financials, so it could be an interesting summer.
We just had our second Safety Net signal in the past 3 weeks. This means that the risk of a sharp drop like the “Flash Crash” in May 2010 or last August’s 16% drop in a few days is very high. Will it happen? No one knows for sure, but now is not the time to be taking a lot of risk.
Things are Changing in Long-Term Care Insurance
By Cynthia DeGeorge
[I was speaking the other day with Cynthia DeGeorge, a Long Term Care specialist here in Prescott. I was so impressed that she could provide an old hand like me with new insights that I asked her to share some of them with you in this guest article. – Will]
As our world is changing rapidly so too is the world of long-term care insurance, especially when it comes to the scrutiny given to applications.
While some health conditions, including cancer and heart problems, are frequently and surprisingly eligible for coverage, many other conditions are now much more difficult to cover. Conditions such as unsuccessfully treated sleep apnea, being over or under weight, receiving physical therapy, certain types of arthritis, certain medications, any form of dementia and other illnesses may mean new applicants are no longer eligible for traditional long-term care insurance.
Every long-term care insurance company views your health conditions differently. You may be insurable with one company and not insurable with another company. When applying for long-term care insurance, companies ask about prior long-term care insurance declines. Once you are declined for coverage by one insurance company it becomes much more challenging to secure coverage with another company. This is sometimes called “the death spiral of declines”. What this means to you is that it is critical to apply to the right insurance company the first time, based on your health history.
With all the technological advances in DNA science, more people are considering being tested for genetic information and markers. Some of these markers may mean that there is a much greater likelihood of being diagnosed with Alzheimer’s disease or another illness. Unless your physician believes there is an urgent need to test immediately, it is important to secure long term care insurance coverage prior to genetic testing. Once your medical history indicates a potential for an uninsurable condition, your options will become limited.
Bottom line — Your good health is worth everything when applying for long-term care insurance. Work with a specialist who obtains detailed health information and is appointed with multiple top-rated insurance companies. Clients who wait too long to apply or apply to the wrong company often jeopardize their ability to put long-term care expense protection in place.
Cynthia DeGeorge, CLTC, Gurley LTCI, 928.445.7060, www.GurleyLTCI Cynthia@GurleyLTCI.com. Cynthia has specialized exclusively in long-term care insurance solutions since 2007.
A Slice of Life
I got a nice surprise at Wal-Mart the other day. I was in need of some boxes to help son, Matt, move into a new apartment and asked if there was a way to intercept some of their boxes before they met the crusher. To my surprise the customer service lady asked me if I wanted one cart full or two?
If you put an order in before 10 p.m. and can pick them up before 7:00 a.m., Wal-Mart will have the flattened boxes stacked in a cart waiting for you. It is a nice service – free, too.
Mental Floss
Q: As a whole, I am both safe and secure.
Behead me, and I become a place of meeting.
Behead me again, and I am the partner of ready.
Restore me, and I become the domain of beasts.
What am I?
A: A Stable
Scottsdale Office Date
Will Hepburn will be in the Scottsdale office on June 14th. If you want to meet with Will and Scottsdale is more convenient than our Prescott office, please call for an appointment at (800) 778-4610.
What’s Going On In Your Portfolio?
Making money consistently in the market means investing with the primary trend of the market. Right now, the trend is lower and defending portfolio values must be the name of the game. Fortunately we have been playing great defense in our Shock Absorber Growth* strategy.
We actually were a little early, reacting in March to the first signs of the market rolling over when the market actually topped on April 2nd, but it is always better to be a little early than late when it comes to dealing with market declines – especially the sharp, sudden ones we have seen in the past two years.
Being early does leave a little egg on my face however. I think you have to learn to like egg to be a money manager, because no one gets it right all the time.
Our Shock Absorber Growth* strategy has seen no changes in the past couple of weeks, but has managed to make a little money since our last newsletter, not something that could be said about the stock market as a whole. The shock absorbing short positions that go up when the market goes down are working very well for us.
We still hold long positions in Utilities, Retail and Consumer Product funds, which have all lost us money in the past two weeks (more than offset by our inverse funds, however). Someone asked me why we don’t sell off the longs in a market decline and just hold the shorts. Good question. Answer: Because then we wouldn’t have the shock absorbing effect of owning the long holdings when the markets turn around. The shock absorbers in the portfolio are intended to work in both directions.
To hold shorts without any longs (called: being “net short”) would have made us a bunch more money the past month or so, but would have entailed more risk, too, and Shock Absorber Growth* is designed to be a low risk growth strategy.
With that said, Bryan and I have been working on a higher-octane version of Shock Absorber Growth* that may go net short at times like this and have higher earning power in good times, too. Stay tuned for more on that.
Our hedges on the Flexible Income* side of things are helping dampen the volatility there, but our high yield funds continue to drag on our performance. We reduced our high yield exposure a few weeks ago and may cut back more on them soon.
Gold, whose bubble turned into a lead balloon in the second quarter, had its first really good day in a long time on Friday, but one day does not make a trend. So we are out of the gold market for the time being and just watching for signs of a bottom.
Our Spotlight Strategy
In our Adaptive Balance®* Strategy we strive to provide high total return from a combination of investments in both the equity and income markets with an emphasis on the income markets.
Adaptive Balance®* portfolios are now 50% invested in the Shock Absorber Growth* strategy and 47% invested in Flexible Income* with 3% cash.
You can see the details on Adaptive Balance®* and how its holdings Adapt to Changing Markets® here [Adaptive Balance]
* The model accounts mentioned in this article are hypothetical examples of how the strategy may work as designed. Activity in client accounts may be different from that in the model in amount of each investment, specific timing of trades, and actual security used, which may vary from account to account. Not all trades are profitable. It should not be assumed that current or future holdings will be profitable. A list of all trades in these accounts for the past 12 months will be provided upon written request.
** The S&P 500 and Nasdaq Indexes are unmanaged lists of stocks considered representative of the broad stock market. Investors cannot invest directly in the S&P 500 Index.
Traditional Income
Flexible Income
Adaptive Balance
Adaptive Growth
Shock Absorber Growth
This newsletter may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Information in this newsletter may be derived from sources deemed to be reliable; however we cannot guarantee its accuracy. Please discuss any legal or tax matters with your advisors in those areas. Neither the information presented nor any opinions expressed herein constitute a solicitation for the purchase or sale of any security.
