Rick's Ramblings

July Interim, 2011

As most of you probably have realized by now, this market (for purposes of this letter, let’s call it the S&P 500, but it applies to a myriad of the indexes), has been all over the place this year.  As recently as June 16th, the index was almost flat, year-to-date.  After a brief rally into early July, the market has been moving back down, and as I write is only at 1303, up approximately 3.5% year-to-date. 

For awhile, the markets seemed to sigh in relief as the Greek parliament agreed to impose more austere programs in exchange for more bailout payments from the EU.  But, no one seems to really believe that this is the end to Greece’s problems.  Now, Portugal and Italy are having the same problems and it looks like Ireland and Spain are in similar situations.

The U.S. is NOT immune to similar happenings.  If we look at our own situation here in the United States, it looks like “austerity” is coming to our country soon.  It is the primary argument between the Democrats and Republicans in their attempt to negotiate a revised “debt ceiling”.  We seem to have gotten used to high levels of government employment and spending, along with the resulting programs and services and we are now not willing to give them up.  Many states within the U.S. face budget shortfalls into the billions of dollars (according to the Center of Budget and Policy Priorities).  Because states can not simply “print money” they will probably have no choice but to cut back on spending and raise taxes (similar to Greece, Portugal, Italy, Spain, and the United Kingdom).

Most everyone knows that when governments spend excessively that it tends to spur economic growth (and the stock market).  However, when governments are forced to change that course and implement austerity programs, we may see that act in reverse.

So, we fully anticipate that Congress will eventually pass some form of revised debt ceiling.  When that occurs, we believe that the market will interpret that favorably and that the market (S&P500, etc) will benefit from that.  In the meantime, with all the volatility that has occurred since the beginning of this year, we are not in a rush to  jump on the long side nor go back on the downside, assuming that a correction will continue.  Right now we have chosen to be patient for a bit longer holding a higher than expected allocation of cash.  Soon enough, the market should signal what direction it wants to move and we will attempt to act accordingly.

As always, if you have questions, please call.  We are in this together !!!

 
 3rd Quarter, 2010 
 
As I write this edition of “Rick’s Ramblings”, it is June 30th. 2010 is one-half year old. I am one full year older. So what has happened over the last year? Well, let’s limit it to what has happened so far this year. On one of my email notices yesterday, it said “The DOW plunges”. Plunges? Well, it did drop 268 points (2.65%) from the previous day. Is that a plunge? I’m not sure. The DOW ended the day at 9870. Was it the low for the year so far? No. It’s been lower than that 4 times this year going back to February 5th. And the DOW is back to where it was last November. With minor exceptions, going all the way back to last September (almost 10 months ago), it appears that the DOW is operating within a “trading range” between 9750 and 10,750. By now, I hope no one is surprised that the market does indeed go in two directions – up and down. As Gomer Pyle used to say - “Surprise!! Surprise!!!” 
 
As to our investment holdings, we continue to be in those areas of “relative strength” as determined with the help of Dorsey-Wright. In our “First Trust 5” program, we are at approximately 60% of our full allocation. It is very similar in our overall “Domestic Equity” allocation. And, although we have gotten close, very few of our “stops” have hit to sell us out of our allocated holdings.
 
So, what do we/I think is going on? Well, the markets seem to have braced for a calamity that really hasn’t happened. Although credit spreads in Europe have widened, no country has defaulted, and economic data hasn’t dropped off a cliff. With the US 10 year note closing at 2.97, the same rate it was at in May of 2009 (near the bottom of the previous market low), the returns on bonds look pretty measly to go into at the current time. US consumer sentiment, although not good, has remained relatively stable. So, at least for the present, the sky has not fallen, even though one might think so by what we read in the press.
 
I, for one, will truly be interested in this quarter’s “Earnings season”, which begins soon. That should tell us a lot more than a press headline espousing a markets one-day decline. Personally, I believe most of the “bad news” is priced into the market. For the most part, currently, we are under-allocated in our equity positions, with “stops” set to take effect should this market continue to move lower. If the market goes up, we will cautiously consider future additions.
 
What’s my recommendation for you? Go enjoy your summer, your kids and grandkids – whatever it is you like to do. This market will move up and down. Although we will continue to see volatility, be assured, we are actively watching on a daily basis and will act accordingly.
 
Happy Summer !!!!!!!!!!!!
 
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The views expressed are not necessarily the opinion of LPL Financial, and should not be construed directly or indirectly, as an offer to buy or sell securities mentioned herein. Investing is subject to risks including loss of principal invested. No strategy can assure a profit nor protect against loss. Sector investing may involve a greater degree of risk than investments with broader diversification.  This is not intended to provide specific advice to anyone.  Please talk to a financial advisor prior to investing.  Past performance is no guarantee of future results.  Indices are unmanaged and cannot be invested into directly.