“If it bleeds…it leads”, says TV producer Robert Redford to newswoman Michelle Pfeiffer in the movie ‘Up Close and Personal’. The Boston Marathon bombings, the escape of the 3 kidnapped women in Cleveland, and now the tornado in Oklahoma have dominated our news. What is our draw to disaster…and how does it relate to you and to your money today?
The excitement of a smash up at the Indy 500, the brawl at a hockey game, a cat fight on the Housewives shows…these are usually mild mishaps compared to the disasters in Boston, Cleveland, and Oklahoma. We tune in to see devastation and destruction to keep us current…or perhaps to find a hero like Rhonda Crosswhite. A sixth grade teacher at Plaza Towers Elementary, Rhonda shielded three kids with her own body as debris pelted her from the tornado. She protected them and calmed them by shouting that everyone would be okay.
Today, we are at the very peak of the stock markets in America, and many investors are wondering if a big financial twister is close on the horizon. Recent history suggests legitimate concern about a market disaster up ahead. During the last 3 Wall Street ‘hurricane seasons’, the S&P 500 declines were -16% in 2010 (April to July), -19% in 2011 (April to October), and -10% in 2012 (April to June). Let’s have a look at the financial heroes for a moment before we prepare for stormy weather.
The DOW has broken the surface of 15,000 and reached all time highs nearly every day in May. Year-To-Date through May 20th, the DOW is +18%, the S&P 500 is +17%, and the NASDAQ is +16%. The leading sectors YTD are Healthcare +23%, Financials +22%, Consumer Goods +20%, and Midcaps at 20%. The S&P Case-Shiller index of home prices in 20 major markets posted a 9.3% rise over the last 12 months. It is the biggest 12-month gain in this real estate index since May 2006. Since the US economy is built primarily on housing and consumerism…as these sectors grow, our markets grow.
Although equities are at their highs, it is not only the price level that is important. The price to value and earnings count, too. Today, the S&P 500 trades at 15 times projected price earnings (P/E). Since 1954, the price earnings average has been 16.4…a higher price average for the last 60 years than projected for 2013.
The Great Gatsby didn’t have it completely right. The ultra rich are different from most of us…but not by all that much. According to a recent study by Columbia, NYU and Harvard business schools, households averaging $100M of net worth tend to diversify their assets, freeze with market fear, and chase investment fads, too. The super wealthy families rarely trade. They have access to privileged investments like private equity and hedge funds…and they can usually hold on to their investments for a long time. Just like us, the super wealthy are good at rebalancing when it is easy, but they don’t do it during a financial crisis when it is hard. In March of 2008, the total stock portfolios held by rich families in a year had fallen from $8B to $3B. You might subtract a few zeroes here for your own net worth, but the lesson remains the same… a good way to avoid a financial hurricane is to have your regular financial check-ups and consistently rebalance your investments.
The probability is high that you have danced to a Donna Summer song or at least felt the urge to get up and shake it to “Let’s Dance”. Donna was inducted into the Rock & Roll Hall of Fame this month, one year after her death at age 63 from lung cancer. No matter the musical genre, a more beautiful voice was rarely heard. Donna was the original disco diva and found herself directly in the eye of a nightclub ‘storm’ that swept through us in 1970s. The Queen of Disco danced to some excellent money management, too. Her albums, concerts, and her television appearances produced income and good investments that created an estimated net worth of $75M.
Should we choose $2500 a month for a “life only” pension or $1500 a month for a “joint and survivor” life guarantee? These are the kinds of retirement income options that are now facing many of us. It is not a simple choice, especially if you are married and in good health. There are a variety of issues that should be addressed before jumping into an option that will be permanent. Does your spouse work or have an income? What is your family life expectancy? How much current monthly income will you need now and in the future? This can be a confusing life decision that should require calculation and consultation. If you know of anyone who is about to retire, being let go, or changing jobs, please send them our way.
Moving to Schwab has been one of the best moves Pacific Sun Financial has ever made. Our clients have been able to view their accounts fully online, simplify and save trees with less paper, and move money in and out of accounts with relative ease at no charge. Our customer service team at Schwab has been top notch. I am able to log on and work from just about any location at any time of day or night. With bank CDs at their lowest rates ever, we have had significant inflows of cash for investment this year. Many new clients are coming to us in hopes of higher returns and better service. Thank you for your introductions to new people.
What’s up ahead this summer? If recent years repeat themselves, then storms and wind-swept wild fires will likely wreak some havoc on our markets during the next few months. The most volatile industries are airlines, building products and automobiles. The lowest predicted volatility is within food products, telecom, and pharmaceuticals. Cautionary tones can be heard from Byron Wien (Blackstone) “the markets are verging on the euphoric and that’s always dangerous”, and Jeffrey Gundlach (Doubleline Capital) “there’s a ka-boom in the markets soon somewhere.” In the long haul, most equity strategists agree that we’re going higher. “I can see the market at 1,900.” Laszlo Birinyi (Birinyi Associates). “Keep the pedal to metal.” Bob Doll (Nuveen). “Two or three years from now we’ll see a market 50% higher.” Ken Heebner (Capital Growth Management).
As I write this report on Memorial Day, the disasters that happen to us pale in comparison to the light from the heroes who arise: the first responders who rescue us and the military who protect us. A feeling of enormous gratitude comes over me today. I send a thank you to those service men and women, and their families, who have watched over us…and a prayer for safety for those who continue to secure our most precious gift of freedom.
Today’s the day.
Pacific Sun Financial Corp; 95 Argonaut, Suite 105, Aliso Viejo, CA. 92656 Telephone: (949) 716-8646 Fax: (949) 716-8645 Website: www.pacsunfinancial.com
National Asset Management, Inc. (NAM) is a Registered Investment Advisor with the SEC. NAM provides fundamental investment management services. The views expressed contain certain forward-looking statements. NAM believes these forward-looking statements to be reasonable, although they are forecasts and actual results may be meaningfully different. Actual events may cause adjustments in portfolio management strategies. This material represents an assessment of the market at a particular time and is not a guarantee of future results. This information should not be relied upon as research or investment advice regarding any security. One cannot directly invest in an index. Index performance returns do not reflect any management fees, transaction cost or expenses. Indices are unmanaged. S&P 500 Index is an unmanaged index of 500 common stocks chosen to reflect the industries in the US economy. DOW Jones Industrial Average is a price-weighted average of 30 significant stocks traded on the New York Stock Exchange. Investment Advisory Services offered through National Asset Management, Inc SEC Registered Advisor. NAM or Pacific Sun Financial does not offer any legal or tax advice. One should consider consulting with a legal or tax professional before implementing investment strategies.