Every time I hear some commentator on CNBC mention the idea that the market expects the Fed to ease rates at some point in the near future--I want to scream! I don't think the Fed has any intention of lowering rates--in fact, if inflation should become a greater concern, their next move may be to raise rates. Economic growth seems pretty good looking at forward indicators--not by looking in the rear view mirror at say GDP growth which came in pretty low.
The latest buzzword I hear about is the possibility of a "liquidity bubble". This seems plausible to me: there seems to be an awful lot of cash available for investment, mergers, takovers and the like, including the amount of leverage in the market. It's not just the U.S., it is global. A lot of liquidity chasing too few assets: that certainly raises asset prices above fair value. The thing about bubbles is, they can last quite a long time.
As far as the market goes, it does appear at least for now that the market could go higher before it goes lower. That downward "blip" we had in February was just that--a blip that had no lasting affect. At some point, we will have more of a real correction, down 8-10%, but as long as traders and managers are waiting for it and preparing for it--it probably won't happen.
Year-to-date returns as of May 11, 2007 are: the S&P500 up 6.2%, the Mid Cap 400 index is up 11.2% and the small cap index is up 7.6%. Looks pretty good so far...we'll see what comes next.
Monday, May 14, 2007
Tuesday, April 10, 2007
The First Quarter is Over
Well, the first quarter of the year is over and the numbers are in. As of March 31 the S&P is up year-to-date .18%, the DOW is down .87% and the NAS is up a paltry .26%. Large cap value outperformed large cap growth--the reverse was true for small caps with growth outpacing value by about 1%. Overall, small caps did better than large caps. The international sector continues to outpace the domestic market. The energy sector did well, while real estate saw some weakness. According to the Stock Trader's Almanac, of which I am a big fan, April marks the end of the "best 6 months". Last year, they were right on cue--what will happen this year?
Growth prospects for the economy remain healthy, which would indicate the Fed will probably not lower rates as the market had previously anticipated. I think the Fed is on hold for the near future. But a healthy economy is good for the stock market as earnings can be expected to remain robust. On the technical side, as an avid chart-watcher for years, the charts appear a little "tired"--the slight correction we experienced in February really did not have a lasting effect and so I think we could see another correction at some point--which would indicate a nice buying opportunity. In terms of specific sectors, I still like Japan specifically and the energy sector. I always like the small and mid caps--I like them more as the "talking heads" continue to insist that their future performance will be less than stellar as compared to the large cap sector. I think the real estate sector will be interesting to watch--lots of money still flowing into that sector supported by a healthy economy and stable interest rates--but WOW those valuations sure are high!
As far as all the talk of home foreclosures and sub prime lending issues--I think the media has overblown the effect of these problems on the overall economy. Just more "noise" through which we must wade.
On the financial planning forefront, an interesting piece of research has come out indicating what a huge difference it makes at what age one starts to save for retirement. The study concluded that by age 35-40, if you haven't already started saving for retirement, that your ability to do so is greatly diminished because of the high percentage you would need to save to get "caught up". The take away here is if you know anyone just starting his/her career--tell them to start saving now! Or if you have teenage children who work summers--have them or you invest some money in a ROTH IRA. The sooner saving begins, the smaller the percentage of income needs to be saved for those Golden Years. If you would like more information on this study, let me know.
If you have anyone you would like to refer to me, please send them to my website http://www.mcdadvisors.com/. As always, thanks for reading.
Growth prospects for the economy remain healthy, which would indicate the Fed will probably not lower rates as the market had previously anticipated. I think the Fed is on hold for the near future. But a healthy economy is good for the stock market as earnings can be expected to remain robust. On the technical side, as an avid chart-watcher for years, the charts appear a little "tired"--the slight correction we experienced in February really did not have a lasting effect and so I think we could see another correction at some point--which would indicate a nice buying opportunity. In terms of specific sectors, I still like Japan specifically and the energy sector. I always like the small and mid caps--I like them more as the "talking heads" continue to insist that their future performance will be less than stellar as compared to the large cap sector. I think the real estate sector will be interesting to watch--lots of money still flowing into that sector supported by a healthy economy and stable interest rates--but WOW those valuations sure are high!
As far as all the talk of home foreclosures and sub prime lending issues--I think the media has overblown the effect of these problems on the overall economy. Just more "noise" through which we must wade.
On the financial planning forefront, an interesting piece of research has come out indicating what a huge difference it makes at what age one starts to save for retirement. The study concluded that by age 35-40, if you haven't already started saving for retirement, that your ability to do so is greatly diminished because of the high percentage you would need to save to get "caught up". The take away here is if you know anyone just starting his/her career--tell them to start saving now! Or if you have teenage children who work summers--have them or you invest some money in a ROTH IRA. The sooner saving begins, the smaller the percentage of income needs to be saved for those Golden Years. If you would like more information on this study, let me know.
If you have anyone you would like to refer to me, please send them to my website http://www.mcdadvisors.com/. As always, thanks for reading.
Monday, March 19, 2007
Markets and More
A couple of interesting things to talk about today. In looking at what type of stocks have done well so far this year, it looks like the Mid cap sector takes the lead. According to today's Wall Street Journal, the mid-caps are up about 2% year to date, the small-cap growth and core styles are up slightly and the small-cap value style is down .1%. The worst hit is large-cap value at -2.6% while large-cap growth is down .7%: which is quite counter intuitive because typically it's the value sector that holds up better in declining markets. The total index is down 1.4% year to date. The return numbers are based on the Dow Jones Wilshire U.S. indexes and does not include any international markets. I just like to point out how important it is to have a weighting in all size market capitalization and how if you just owned a Wilshire 5000 index fund, you would be at a disadvantage.
In the news last week are the results of a study done by Fidelity Research Institute that concluded Americans have only saved enough to replace 58% of pre-retirement income in retirement. This is starkly below the 80% benchmark most financial planners use. My rule of thumb in figuring out how much someone will be spending in retirement is to assume that all debts will be paid off by then and that spending will really be related to living expenses, travel etc and then later on, health care expenses. Not everyone is in the situation of being debt free by retirement--those people may need to work part-time in their Golden Years.
Many of you may not realize that a source of great irritation for me is the whole 401k industry. It angers me that while the pressure for preparing for retirement is clearly being pushed from the employer to the employee , yet most of us are stuck with plans that include high cost, mediocre-at-best mutual funds. Additionally, plans do not disclose what the costs are--which get passed directly to employees. The Department of Labor has apparently made it their priority to force 401k plan sponsors to disclose all fees including indirect compensation. It's a start at least. One easy remedy is for a plan sponsor to include a brokerage option within the plan which would allow employees to funnel their 401k contributions to a brokerage account where they, with the help of a financial advisor, could choose their own investments.
Thanks for reading.
In the news last week are the results of a study done by Fidelity Research Institute that concluded Americans have only saved enough to replace 58% of pre-retirement income in retirement. This is starkly below the 80% benchmark most financial planners use. My rule of thumb in figuring out how much someone will be spending in retirement is to assume that all debts will be paid off by then and that spending will really be related to living expenses, travel etc and then later on, health care expenses. Not everyone is in the situation of being debt free by retirement--those people may need to work part-time in their Golden Years.
Many of you may not realize that a source of great irritation for me is the whole 401k industry. It angers me that while the pressure for preparing for retirement is clearly being pushed from the employer to the employee , yet most of us are stuck with plans that include high cost, mediocre-at-best mutual funds. Additionally, plans do not disclose what the costs are--which get passed directly to employees. The Department of Labor has apparently made it their priority to force 401k plan sponsors to disclose all fees including indirect compensation. It's a start at least. One easy remedy is for a plan sponsor to include a brokerage option within the plan which would allow employees to funnel their 401k contributions to a brokerage account where they, with the help of a financial advisor, could choose their own investments.
Thanks for reading.
Sunday, March 11, 2007
First posting
Well, I have finanlly decided to join the many who have decided to write for all the world to see. I decided this would be a great forum to keep in touch with current, past and prospective clients in a timely way. I find that when the market declines sharply, folks want to know what I am thinking--despite the fact that I take a long term view of the market.
So here's what I think now: the past two weeks have been extremely volatile. This is I believe largely due to the presence of hedge funds. I heard on CNBC the other day that hedge fund trading makes up about 30% of all trading on the NYSE. Many hedge funds make very short term trades: they are in, next day, they are out--makes for much anxiety for the rest of us. I think especially in the emerging markets arena: like China which was up 80% in 2006, we could continue to see much volatility. In addition, in looking at the charts, it appears that although damage has been done, there could still be more on the way. Also consider that the spring and summer are typically not a good time for the market--the old adage, "Sell in May and go away", certainly held true last year. I don't advocate trying to time the market--and since all my clients have diversified investment portfolios, I share these thoughts with you to alter your expectations that we may be in for some more downside. For anyone who has some cash to invest, this means an opportunity to buy at better prices.
What is happening in the market is not nearly important as what is happening in your life. While market returns are an important component in developing financial planning models, the amount of assets you have and how much you spend are equally as important. I plan on using this space to discuss ideas regarding all of these things and refer you to resources for more information.
So here's what I think now: the past two weeks have been extremely volatile. This is I believe largely due to the presence of hedge funds. I heard on CNBC the other day that hedge fund trading makes up about 30% of all trading on the NYSE. Many hedge funds make very short term trades: they are in, next day, they are out--makes for much anxiety for the rest of us. I think especially in the emerging markets arena: like China which was up 80% in 2006, we could continue to see much volatility. In addition, in looking at the charts, it appears that although damage has been done, there could still be more on the way. Also consider that the spring and summer are typically not a good time for the market--the old adage, "Sell in May and go away", certainly held true last year. I don't advocate trying to time the market--and since all my clients have diversified investment portfolios, I share these thoughts with you to alter your expectations that we may be in for some more downside. For anyone who has some cash to invest, this means an opportunity to buy at better prices.
What is happening in the market is not nearly important as what is happening in your life. While market returns are an important component in developing financial planning models, the amount of assets you have and how much you spend are equally as important. I plan on using this space to discuss ideas regarding all of these things and refer you to resources for more information.
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