Monday, January 25, 2010

Stock Traders' Almanac

December Low Breached
As we warned in the Pulse of the Market in the February 2010 issue on page 3, the market was ripe for fall as sentiment had been at extremely complacent levels for some time. With help from the political arena stocks turned tail last week, pushing the major averages down about 5% in three days; the biggest pullback since July. This drop was enough to cause the Dow to close below its December closing low of 10285.97 on 12/8/09., triggering the dreaded December Low Indicator (2010 STA, page 40).
Since 1950 when the December Low Indicator has triggered, the Dow has fallen an additional 10.9% on average. This was precisely the case the past two years with the Dow losing an additional 42.1% in 2008 and 17.6% in 2009 before surpassing the previous high. Excluding 2008’s drop, the largest of them, reduces the average subsequent drop to about 10% -- that would put the Dow at about 9155.
A rebound of about 24 S&P points, or 2.1%, would put the January Barometer positive for 2010. In eleven years when the December Low was breached but the JB was positive, subsequent declines were reduced to 6.0% and the years as a whole had much greater gains, averaging 8.2% versus -4.0% for years when both were negative.
Technical and seasonal warnings have been issued, sentiment has been giddy and the folks in Washington are on notice. Midterm years as we have been reminding lately are often fraught with uncertainty and market volatility. Obama presents his first State of the Union this week and Bernanke’s confirmation deadline is month end. The most prudent course of action is to refrain from major new purchases, tighten stops, take any sizable short term profits and assess the conditions at week’s end.

Thursday, January 21, 2010

on-financial-advisors-watching-tv from Barry Ritholtz


I spoke at a conference recently at a major bulge bracket firm. A friend introduced me to a bond manager who runs an enormous amount of money.
He is not the typical manager. He said one of the most amusing things I’ve ever heard:
“Isn’t it funny when you walk into a investment firm, and you see all of the financial advisors watching CNBC — that gives me the same feeling of confidence I would have if I walked into the Mayo-clinic or Sloan Kettering and all the medical doctors were watching General Hospital…”

Interesting Point from the economist Stiglitz


Stiglitz drives his main point:World has excess supply (labor, capital), yet many unmet needs (poverty, unemployment). Key is to repair this

Web Access Is New Clinton Doctrine


Web Access Is New Clinton Doctrine

The U.S. plans to make unrestricted access to the Internet a top foreign-policy priority, Secretary of State Hillary Clinton plans to announce Thursday.
The announcement, which has been scheduled for weeks, comes in the wake of accusations last week that Chinese hackers penetrated Google Inc.'s computer networks. The attack, which also targeted Chinese dissidents, is the kind of issue Mrs. Clinton aims to address, said Alec Ross, a senior adviser.
The growing role of the Internet in foreign policy became clear last year during protests in Iran after allegations of election fraud. The government tried to crack down on protesters' Internet communications, but they circumvented digital blockades to send out video and Twitter messages about violence against demonstrators.
In one new initiative, the State Department plans to offer financial support to grass-roots movements that promote Internet freedom, Mr. Ross said.
Mrs. Clinton also hopes to diminish the "honor" beatings and killings of women in the Middle East by family members who discover they are using social media on the Internet, such as Facebook or Twitter, he said.
Mrs. Clinton sees Internet freedom as critical to America's longstanding promotion of democracy abroad, Mr. Ross added. She aims to shrink the proportion of the global population, now 30%, who live in countries that censor the Internet, he said.
"When we sit across the table from governments and talk about what matters to us, this is now on the table," Mr Ross said.
Other initiatives will include State Department funding for pilot technology programs to promote goals like government transparency, Mr. Ross said. One example could be providing funding for a Web site that allows citizens to rate aspects of their government—much like restaurant reviews are posted on the Internet—to publicize experiences such as bribery.
The initiatives build on ad hoc decisions made last year during the Iranian protests, such as the State Department's decision to ask Twitter to delay a planned upgrade at the time to ensure protesters could continue to get their message out.
They also mirror policies State has been advocating at the United Nations, where it has been fending off Russian and Chinese efforts to restrict access to information on the Internet on the grounds of national sovereignty, according to people familiar with the talks.
In recent months, both Russia and China have signaled a willingness to negotiate on cybersecurity. In November, a top-level Russian delegation met with U.S. officials about cybersecurity for the first time. Russian officials have also been trying to link up U.S. and Russian academics to study how the laws of war and international law might apply in cyberspace.
Last month, representatives from a think tank associated with Chinese security services met with U.S. cybersecurity experts to diffuse tensions over U.S. allegations of spying.
The State Department has also organized delegations of U.S. executives for trips to Baghdad and Mexico City to share thoughts on how new technologies could be best used in rebuilding the Iraqi government and fighting drug violence. "I've never experienced such government involvement before" in promoting technology internationally, said Jack Dorsey, Twitter co-founder and chairman.
Mrs. Clinton's elevation of Internet freedom could signal an important foreign policy shift, said Andrew Rasiej, founder of the Personal Democracy Forum, an annual conference on technology and policy. "This signals a critical shift in moving U.S. foreign policy from a 20th century world view to a 21st century reality," he said.
Advocacy groups supporting Iranian dissidents cheered the new initiatives. "It's a very significant development," said Brett Solomon, executive director of AccessNow.org, a group that has helped dissidents get videos and communications past Iranian Internet barricades. "It underlies the power of new technology to shift the political agenda."
Write to Siobhan Gorman at siobhan.gorman@wsj.com
Copyright 2009 Dow Jones & Company, Inc. All Rights Reserved
This copy is for your personal, non-commercial use only. Distribution and use of this material are governed by our Subscriber Agreement and by copyright law. For non-personal use or to order multiple copies, please contact Dow Jones Reprints at 1-800-843-0008 or visit
 

Wednesday, January 13, 2010

From Stock Traders Almamac

Despite all the jockeying for position in Washington, Senatorial retirements, griping on heath care and financial reform, lax intelligence, terrorism and signs of slowing in the economic recovery, the stock market has opened the year on a positive note. Following the late-breaking, solid Santa Claus Rally, January’s First Five Days have also turned in an encouraging positive performance with the S&P 500 up 2.7%. This is the best first week of the year since 2006.

The last 36 up First Five Days were followed by full-year gains 31 times for an 86.1% accuracy ratio and a 13.7% average gain in all 36 years. However, in Midterm Years like 2010 the First Five Days has a dubious record. The S&P 500 posted a gain for January’s First Five Days in 9 of the last 15 Midterm Years. Only five followed suit. (2010 Stock Trader’s Almanac, page 14).

The return of seasonal bullish market action is encouraging. This up First Five Days reinforces our belief that the current bull market still has some legs and lends support to our 2010 Annual Forecast in the recent January 2010 issue for further gains before any sizeable pullback later in 2010.

But remember Midterm years are notorious for sharp corrections and juicy buying opportunities and the machinations already brewing in the political arena suggest 2010 is as vulnerable as any Midterm year and perhaps more so, considering the trajectory of the rally so far, the political capital at stake and the still precarious position of the recovery and regular guy on the street.

The final arbiter of these yearend/New Year indicators is of course the January Barometer at month-end. The December Low Indicator (2010 STA, page 40) should also be watched with the line in the sand the Dow’s December Closing Low of 10285.97 on 12/8/09. In other good news, the January Effect (2010 STA, page 104 & 106) of small caps outperforming big caps is already underway, with the Russell 2000 outperforming the Russell 1000 by nearly 2-to-1 since December 15.

Wednesday, January 6, 2010

Fed Sees Stronger Economy, But Housing A Worry

Fed Sees Stronger Economy, But Housing A Worry
By LUCA DI LEO AND MEENA THIRUVENGADAM

Of DOW JONES NEWSWIRES 




WASHINGTON -- U.S. Federal Reserve officials last month acknowledged the economy was gaining momentum, but some worried more stimulus may be needed to sustain the recovery, especially in the housing sector.
A few voting members on the Fed's rate-setting committee said it may be necessary to expand the central bank's $1.25 trillion mortgage-backed securities purchases if the economy weakens, minutes of the Dec. 15-16 meeting showed.
The minutes of the Federal Open Market Committee meeting, which were released with the usual three-week lag Wednesday, showed that central bank officials expect a slow recovery to keep the U.S. labor market weak and consumer prices subdued.
Fed officials said information reviewed in conjunction with the meeting suggested "the recovery in economic activity was gaining momentum."
The economy was strengthening in the last quarter of 2009, helped by an improvement in financial markets. However, Fed officials worried that persistently high unemployment in 2010 and the fading of the massive government stimulus could threaten a recovery from the worst recession in decades.
Some central bank officials worried that improvements in the housing sector may be undercut in 2010 as the Fed's purchase of $1.25 trillion of mortgage-backed securities winds down. The Fed has said it expects to complete the purchase by March 31, but not all FOMC members agree.
Some officials thought expanding the scale of asset purchases and continuing them beyond the first quarter of 2010 may be "desirable," the minutes showed. But at least one believed the improvement in the economy suggested the purchases could be scaled back.
"We have a recovery that seems more solid, but there's uncertainty on its pace and sustainability," said Paul D. Ballew, a former Fed economist who is now senior vice president at Nationwide.
As expected, the Fed held its benchmark interest rate near zero at the December meeting and affirmed its plans to keep it there for several more months due to high unemployment and low inflation.
Fed officials remained worried about the labor market's weakness, even following a better-than-expected November employment report showing job losses slowing to the lowest level since the recession began in December 2007.
"Several participants observed that more than one good report would be needed to provide convincing evidence of recovery in the labor market," the December minutes said. Fed officials have predicted the unemployment rate will average between 9.3% and 9.7% in the fourth quarter of 2010.
Labor Department jobs figures due out Friday likely will show that roughly one in 10 Americans who want to work were still out of a job in December.
The report is expected to show the U.S. jobless rate inched higher to 10.1% last month from 10% in November, according to a Dow Jones Newswires survey of Wall Street economists. The survey has analysts predicting nonfarm payrolls fell by 10,000 in December, following a moderate 11,000 drop in November.

Tuesday, January 5, 2010

Hey Apple Wake Up - Blodget

Is your financial advisor worth it? | Vanguard Blog



Is your financial advisor worth it?

By Ellen Rinaldi on January 4, 2010 12:03 pm
If you rely on a financial advisory firm to manage your assets, how do you know if you’re getting what you pay for?
We think the answer to this question comes down to several specific points, one of which (an important one, but by no means the only one) is investment performance. If your advisor hasn’t at least outperformed broad market indexes by the amount of his or her advisory fees, ask yourself whether it might have been simpler to invest in broad index funds on your own.
But if you do need (or prefer) to use an advisor, what’s the best way to judge the value of the service you’re getting?
Staying the course
First, you may need to broaden your view of value. It’s not limited solely to absolute performance generated in any one period. Consider not only performance over time, but also whether your advisor added value by encouraging you to stay with a sound investment plan and cautioned you against chasing performance, regardless of market conditions. We’ve all been nervous about how we will make up what we lost during the 2008–2009 market downturn. The almost irresistible urge to change your asset allocation and take a chance on riskier investments—or to pull out entirely and “lock in loss”—should have been successfully deterred by your advisor.
A solid framework
Second, consider whether your advisor has constructed your portfolio from the top down rather than bottom-up. Left on their own, many investors work from the bottom up, starting with manager and fund selection. This is very difficult to accomplish because of the diversity of available managers. It’s generally not enough to just pick a fund according to its “style box” (like “large-cap growth,” for example), since funds within a classification can have very different characteristics. Repeating this process several times in different categories could ultimately result in a disappointing aggregate portfolio.
Your advisor should be able to explain the asset allocation framework he or she developed for you. Listen for your advisor’s expectations of risk and return, and an explanation of how those expectations are tied directly to your goals. Your asset allocation should start at the broad level (stocks, bonds, cash), and then, if you’re investing in mutual funds, move on to actively managed vs. index funds, or a combination of both. Your advisor should also be able to explain your portfolio’s stock sub-asset allocation—market capitalization, growth vs. value, and domestic vs. international. For bonds, he or she should be able to talk about maturity, duration, and credit quality. And if your portfolio weightings differ from the broader-market weightings for a particular asset class, you should know this—and why.
(By the way, this explanation shouldn’t take your advisor more than 10 to 15 minutes. One lesson everyone should have taken to heart over the last two years is that if you can’t understand what you’re invested in, you probably shouldn’t be in it.)
Location, location, location
Finally, your advisor should be very mindful of asset location by positioning assets between taxable and tax-advantaged accounts with the objective of maximizing your portfolio’s expected after-tax return. The extra return you achieve on an after-tax basis without increasing portfolio risk may be incremental in any given year, but it can make a big difference when compounded over time.
If your advisory firm has prevented you from making ill-advised moves, constructed a reasonable, understandable allocation, and positioned your assets with your tax picture in mind, they have added value. Start there, and then look at relative performance.

2010 Investment Predictions


AdvisorTweets





RT @StockTwits: The Ultimate Guide to $twentyten Investment Predictions and Outlooks:http://stk.ly/6V1r5V Great resource!

Monday, January 4, 2010

7 Key tax tips




Sunday, January 3, 2010

On Asset Allocation from Dorsey Wright


One of the principles of strategic asset allocation is that you can reduce your risk by combining assets that have low or negative correlations. It requires the correlations between asset classes to be stable. Unfortunately, that is not the case. As a recent article in the Wall Street Journal points out:

As stocks retreated and recovered in the past 15 months, commodities investments moved in step with the U.S. market.
That wasn't supposed to happen.

Investing in commodities long has been pushed as a useful way to cushion portfolio risk. "We haven't seen the independence (in commodities returns) that you'd hope for in a diversified portfolio," says Jay Feuerstein, chief executive of Chicago commodity-trading adviser 2100 Xenon Group.

This time, instead of moving independently of stocks, commodities have moved almost in lockstep with equities. The diversified portfolio you thought you built really isn't diversified at all. To my way of thinking, this argues strongly in favor of tactical asset allocation where the portfolio is based on the current behavior of the individual components and not on some pretend correlation.