Blog

One of Our Favorite Money Managers Knows He’s Smarter Than Ben Bernanke

06.19.2013

Michael Aronstein is one of our favorite money managers mostly because he is so pragmatic and debunks a lot of the myths in the financial markets. He tries to pay attention to only those data points that matter, and forget about everything else. He has a venerable track record and is always full of tons of market wisdom. The link below is to an interview he recently gave to Bloomberg where he lays out the case for why the Fed is always behind the curve and is a lagging indicator, not a leading indicator of what is to come:

Michael Aronstein on Bloomberg

As always, please consult your own financial advisor before making any investment decisions.

 

Mark S. Starosciak, Managing Partner & Financial Advisor

Infinium Investment Advisors

 

Opinions and views expressed by our Financial Advisors are provided for informational purposes only and should not be construed as investment or tax advice. Content on this website is not a recommendation to buy or sell any security or financial product, or investment strategy. The ideas expressed on this site are solely the opinions of the Financial Advisor(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Consult your investment and/or tax adviser before making any investment decisions for its appropriateness in your personal situation.

Mr. Market Says, “Take your Medicine!”

05.14.2013

"Take one's medicine: to undergo or accept punishment, especially deserved punishment"

www.dictionary.com

 

Wait a minute; I thought a thundering bull market was suppose to help investors, not hurt them! Unfortunately for many people (including the professionals) who have remained stubbornly bearish, the recent run higher has exposed the huge opportunity cost they have suffered by avoiding stocks. In essence, the bears are now forced to "take their medicine" and realize that, despite all of the negative headlines over the past several years, markets heal and recover. There is no denying this fact now given the NASDAQ, Dow, and S&P 500 are all at post-crisis highs. Whether or not this rally continues and for how long is a completely different question that we address below. 

A popular saying in the investment business is "price is truth." Translated this means that the current value of the markets reflects what the majority of investors believe at any given time. Not to say that the masses are always correct; indeed, they often get it wrong but price does provide us a window into the minds of all market participants.

So the natural question is, "Does the market have it correct right now?" The short answer is yes given a variety of broad trends that are currently happening today: a housing recovery, better employment, historically low interest rates, central banks around the world pumping money into the system, and little political noise out of Europe to name a few. So let's be clear, all of these are positive catalysts for growth.

However, we cannot lose sight of the fact that the markets and the economy are not joined at the hip. Frequently they are quite disconnected and sometimes move in a direction completely opposite of what one might expect. Misinterpreting this relationship is one of the most deadly mistakes we see investors make when managing their hard-earned savings.

Speaking of Federal Reserve liquidity and money printing, many voices we hear today believe that's the real reason the markets are going up.  The logic follows that once the Fed takes away the easy money punch bowl, that will sink the markets. Not so fast. The chart below shows the strong relationship between initial jobless claims (inverted) and the S&P 500. As claims rise, the market falls and vice versa. The idea that liquidity in the markets is solely responsible for this run up is not founded in fact; what is certain is that less people are filing for unemployment benefits and presumably they are instead finding work. And when people are working, they are making their rent and mortgage payments, they are going on vacations, quite possibly saving money via a company retirement plan, and overall consuming goods and services. Remember, the US economy is more than 2/3 driven by consumer spending and more jobs means more spending. In our opinion, initial jobless claims is a key indicator to watch and an uptick in that data point may very well coincide with a market top.

sandpvsinitialclaimsMay10

Courtesy of www.businessinsider.com and Federal Reserve Economic Data http://www.federalreserve.gov

 

Given the generally positive environment we see today, Infinium Investment Advisors must be equally as bullish, right? Hardly. Regular readers of our blog and viewers of our video updates know we are contrarians by nature. Experience shows us that if you follow the crowd for too long, you will fall into the trap of underperforming and missing highly profitable opportunities. Last year our case for stocks centered around the fact that far too many investors wanted nothing to do with stocks. Even though the trajectory has been solidly up since the bottom in March 2009, investors have largely steered clear of equities and favored bonds, cash and even precious metals like gold. It's funny, though, that the point of maximum profit potentially usually coincides with the point of maximum pessimism.

Our last update discussed the fact that when fear turns to greed, momentum alone can carry the markets higher and farther than most people believe is possible and logical. We are quickly approaching the point where these markets have exhausted in the short-term and gravity pulls them back into a normal range. Many indicators that we watch are telling us to be cautious here; not necessarily outright bearish since the averages are up somewhere in the neighborhood of +14% year-to-date, but rather, the market will return to a reasonable back-and-forth, instead of straight up. So the risk/reward is less-than-favorable here and investors need to tread very carefully when considering putting new capital to work in riskier assets.

Finally, what do investors do today that may have been overly bearish and missed out on this bull run? Our view is, take your medicine, admit you were wrong, and sit down with a financial planner who can craft for you a sound investment strategy. There are far too many traps in today's markets that can sidetrack you and really hurt your chances at financial success. This doesn't mean to run out and load up on stocks here as making wholesale changes in your allocation is rarely the correct move.

Take the time to map out what your money needs to do for you and when. You owe this to yourself and your family. 

 

Mark S. Starosciak, Managing Partner & Financial Advisor

Infinium Investment Advisors

 

Opinions and views expressed by our Financial Advisors are provided for informational purposes only and should not be construed as investment or tax advice. Content on this website is not a recommendation to buy or sell any security or financial product, or investment strategy. The ideas expressed on this site are solely the opinions of the Financial Advisor(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Consult your investment and/or tax adviser before making any investment decisions for its appropriateness in your personal situation.

Apple Stock: Impact on the Markets

10.10.2012

In our most recent Market Update video, we discussed briefly Apple's wide-ranging impact on the markets. CNBC ran this piece today that helps to shed some light on Apple's dominance and its impact on how fund managers construct their portfolios.

Apple's Impact on the Market

The shocking truth - some of the best performaing funds have a 13% weighting (or more) in Apple alone! Kind of reminds us of the Tech Bubble when technology stocks made up more than 50% of the S&P 500 index at the peak in early 2000. Overweighting Apple has been a terrific strategy given the strong performance of the stock, but what happens when (and If) Apple starts to underperform? Many of these same funds that have looked so good over the past few years might very well significantly underperform, unless their managers trade out of Apple successfully.

What does all of this mean for the average investor? Understand what you own in your portfolio and why!

At some point, Apple's meteoric rise will slow, and it should make it an easier for actively managed funds to beat the market who do not have a super-sized position in the stock. 

 

Mark S. Starosciak, Managing Partner & Financial Advisor

Infinium Investment Advisors

 

Opinions and views expressed by our Financial Advisors are provided for informational purposes only and should not be construed as investment or tax advice. Content on this website is not a recommendation to buy or sell any security or financial product, or investment strategy. The ideas expressed on this site are solely the opinions of the Financial Advisor(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Consult your investment and/or tax adviser before making any investment decisions for its appropriateness in your personal situation.

Market Update: An Important Sign for Stock Investors

07.01.2012

In our Market Update video from the end of May, we showed a slide of where investors are putting their money (bond funds) and where they are pulling out (stock funds). To anyone who follows the average investor on Main Street, this should be music to your ears! See this "on the street" interview segment from CNN:

Investors Pull Out of the Stock Market

There's little doubt that the global fears, particularly in Europe, have taken investors for a ride and it seems like they have finally thrown in the towel on stocks. Again, think back to 1999 or early 2000 when Maw and Paw Kettle loved stocks and wanted as much as they could get, then they wanted even more. We all know how that bubble ended. Not that you can make investment decisions based soley on what the little guy is doing at any given point, but it is a sign post nonetheless. And when you add everything up, we still maintain that right now - despite all of the bad news - stocks provide a good risk/reward trade-off.

 

Mark S. Starosciak, Managing Partner & Financial Advisor

Infinium Investment Advisors

 

Opinions and views expressed by our Financial Advisors are provided for informational purposes only and should not be construed as investment or tax advice. Content on this website is not a recommendation to buy or sell any security or financial product, or investment strategy. The ideas expressed on this site are solely the opinions of the Financial Advisor(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Consult your investment and/or tax adviser before making any investment decisions for its appropriateness in your personal situation.

THE Year-End Move to Consider Now

12.01.2011

Here in the Mile High City of Denver, you can’t go too far without seeing the image of a wild horse otherwise known as a bronco. Football fans are particularly enamored with the beast given Tim Tebow’s miraculous 7-1 start with our hometown professional football team.

And for those unfamiliar with Denver’s adopted mascot, the city has commissioned what can only be called a 32-foot-tall Horse from Hell complete with demonic red eyes to welcome all visitors arriving into Denver’s International Airport. It’s so controversial that the Wall Street Journal even ran a piece on it a couple years ago: A Horse of a Different Color

If you were watching the markets at all this year, you could easily mistake them for a bucking bronco, flailing back and forth trying to toss to the ground any and all investors who dared take a ride on it. The hedge funds and gun-slinging fast money investors relish in the volatility as they try to move in and out of the markets like a gambler running from casino-to-casino looking to make a buck. Unfortunately for many traditional investors, 2011 made them want to get off of the horse and stay off for good. Who could blame them given the whipsaw, back-and-forth moves up and down? Makes a person seriously question the validity of owning stocks in the first place.

At Infinium Investment Advisors, we believe the current mayhem in the markets can actually be our friend, rather than our enemy. In an interview on CNBC this past November, Warren Buffett even said, “Volatility is good for you.”

He continued with a blunt statement about the current environment, “I mean, if farm prices would vary from X to 3X in a given year, I'd make a lot of money in farming. I just buy when people were depressed. They don't move that much. Stocks overreact all the time and that's why a guy who can keep his senses about him can get very rich.”

So our goal as financial advisors is to keep our perspective and to help our clients do the same. How do we do this? We believe investors should consider the most important year-end strategy to combat the recent turmoil and be ready to profit once the markets calm down:

Create a financial plan! We cannot overstate the value of this exercise for everyone. The old saying goes, “the cobbler’s kids have no shoes.” In other words, often times the savviest investors spend oodles of time planning and forecasting in their businesses but fail to draft a blueprint for their own financial success. If you have not created a financial plan for Your Household Inc., we challenge you to carve out the time to complete this now.

At the very least, make the commitment today to draft and adopt your personal financial road map in 2012. What is your slowest month of the year (if such a time even exists)? Once you identify the best month of year to tackle your plan, we suggest you find a trusted advisor to help you with this process. Your time is too valuable to not outsource the heavy-lifting involved with the creation of a sound financial plan.

Without question, the biggest benefit you will get from creating your plan is to determine what your money needs to do for you. For example, do you know what rate-of-return your investable assets must produce in order for you to attain all of the goal items you have, like putting your children through college, ensuring you can live a comfortable retirement independent of help from others like the government, or even that cabin in the mountains where family memories will be made for years to come?

By finding this number, you will give yourself peace of mind and greater confidence that will minimize the odds that you will make a foolish mistake with your money as the markets kick like a bucking bronco.

One of the most interesting findings from our financial planning process over the years with clients is that many of them are taking too much risk! It stands to reason that if you take more risk, and make greater returns on your investments, you will have a bigger cushion and more financial security. Sounds reasonable, but in reality, with greater risk we see greater uncertainty of the results. Of course, if you don’t know how all of the inputs work together - like your annual savings, inflation, withdrawal rates and portfolio returns - you may very well jeopardize your chances of success by pushing the envelope too far with your portfolio.

In the current environment, we are also seeing just the opposite with greater frequency; an investment mix that is so conservative or skewed to gold, for example, that the investor stands little-to-no chance of hitting their needed rate-of-return bogey. The only way to really get your hands around the answer to this question is to make the time to do your plan; you won’t regret the effort. In our experience, the total commitment require by a client can be as little as two hours which certainly many investors can spare in order to get their financial house in order.

If you would like to learn more about Infinium’s financial planning process, click here:

Infinium's Financial Planning Process


or contact us via email or phone.


The entire team here at Infinium Investment Advisors wishes you a prosperous and healthy 2012!

 

Mark S. Starosciak, Managing Partner & Financial Advisor

Infinium Investment Advisors

 

Opinions and views expressed by our Financial Advisors are provided for informational purposes only and should not be construed as investment or tax advice. Content on this website is not a recommendation to buy or sell any security or financial product, or investment strategy. The ideas expressed on this site are solely the opinions of the Financial Advisor(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Consult your investment and/or tax adviser before making any investment decisions for its appropriateness in your personal situation.

Market Update: The Good, the Bad & the Less-Ugly

10.16.2011

  In the 1966 spaghetti western The Good, the Bad and the Ugly starring Clint Eastwood, three desperadoes gunfight their way through Civil War battlefields searching for buried Confederate gold. Eventually, Dirty Harry prevails and rides off into the sunset with the booty, but getting there wasn’t pretty. Not unlike the markets this year; it’s been a wild ride and maybe, just maybe, there is a sweet reward waiting for investors who can presevere.

        

Yes, the wild swings up and down over the past 3-4 months can wear a person down, make them want to throw in the towel and tuck their savings ever so carefully under the bedroom mattress, or into a nearly 0% return money market fund. That feels comfortable, doesn’t it? It sure sounds like the best bet given the crazy headlines out of Europe, the chronically high unemployment rate here in the U.S., and the feeling that the next shoe is about to drop and take this market down yet again.

Readers of our blog will note that we have been quite cautious since early June of this year (Market Update: Proceed with Caution), and have espoused the merits of holding cash. The financial services industry as a whole does not feel the same way. Trust me, as I was a broker at Merrill Lynch for more than a decade and the firm cares more about the next dollar of revenue more than they do about their customers.

Fortunately for our clients, as an independent financial advisor, we are free to adjust portfolios to match market conditions. If that means a heavy amount of cash, then so be it. This is the single most important benefit to our work at Infinium vs. one of the behemoth banks like a Bank of America/Merrill Lynch. They just don’t have the same flexibility to reduce risk like we do. I’m thankful everyday that we are able to protect our clients’ assets to whatever extent is necessary, especially in markets like we’ve experienced this summer.

So it’s been an Ugly time for the traditional investor and the surveys we monitor suggest that consumers and investors are quite pessimistic right now. Of course, our contrarian nature makes us a lot more interested in taking on risk when the crowd is running from it. The Good, as we see it, is that the conditions are finally right for this market to find its legs and make a sustained push higher. Note that we’re saying, “conditions are right” and not that our positive outlook will come to pass! Our role is to assess the landscape and make decisions based on the best knowledge and interpretation that we can muster and history will show if our signals were correct.

The crowd will counter, “But Mark, the Euro is about to collapse, the US is in debt to our eyeballs, etc., etc.” and to this we cannot disagree. The beauty of the markets is that they do adjust to the many inputs that affect it, and now it appears as though the negative scenarios are well accounted for and the real surprise might come in the form of a better-than expected economic and company news; the Less-Ugly if you will. See, if investors’ collective belief is that everything is Bad, and the scenario is Less-Ugly, that’s the recipe for a Good stock market.

Just look at the S&P 500 from March 2009 to the summer of this year. Many would argue that the economy was hurting and the aforementioned problems here and around the world have not improved. However, over that period of time stocks as whole were up more than 100%! In a two year span of time, you doubled the value of your equities. Not because the world was twice as good as two years ago, but that investors sold too much while expecting a complete meltdown in the capitalist system as we know it, and that never happened.

                                     

 

Fast-forward to today and what do we find as the investment strategy du jour? Here is a short list for your viewing pleasure:

  1. Out of the stock market, and into something else with less risk; “I haven’t made anything for 10 years in stocks so why should I own them anymore?”

  2. Buy gold to protect yourself against inflation; better yet, own the metal outright through coins or bricks of bullion instead of paper assets like GLD (a popular gold ETF)

  3. The US dollar will collapse so again, own precious metals

  4. Own bonds; they are safe and your get some income from them

The four bullet points above highlight the strategies that have worked well over the past several months to even years, in the case of gold. We aren’t suggesting to abandon all of these en masse, but rather, with so much interest in the“safe” investments, so-called “risky” assets might be worth a look.

Where do we stand now? From our perspective, we believe that the investment themes of conservatism and safety may be played out at this juncture. This viewpoint is subject to change, and change quickly. For example, if the Europeans stay relatively quiet, then a good stock market is a real possibility. If, however, the situation continues to deteriorate and the Euro leaders lock horns in a stalemate, it will be difficult for the stock market to rally in any significant way and gold will remain strong. In the US, the popular notion is that we are spiraling towards a recession and the economy is about to tank. Although consumer sentiment is very low, shoppers continue to spend at a steady clip. Approximately ⅔ of our GDP in the US is driven by consumer spending so as long as this remains healthy, we are not concerned with the idea of a US recession.

                                    


Indeed, taking less risk has worked well this year, but the real question is not what investments performed best in the most recent past, but rather, “what is the optimal strategy going forward, 6-12 months from now?” Given a Less-Ugly scenario may happen with expectations so low, the end of the year and into 2012 could provide investors with some pretty returns.

 

Mark S. Starosciak, Managing Partner & Financial Advisor

Infinium Investment Advisors

 

Opinions and views expressed by our Financial Advisors are provided for informational purposes only and should not be construed as investment or tax advice. Content on this website is not a recommendation to buy or sell any security or financial product, or investment strategy. The ideas expressed on this site are solely the opinions of the Financial Advisor(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Consult your investment and/or tax adviser before making any investment decisions for its appropriateness in your personal situation.

Market Update: A Change for the Better

08.11.2011

Today's market action was decidedly better than anything we have seen over the past few weeks. The +400 point move on the Dow and the nearly +5% rise in the S&P 500 feels like a normal day now, but unlike recent rallies, this move came on the back of terrific insider buying data and a marked change in investor sentiment:

Sentiment Finally Turns

From a technical perspective, we regained a critical level on the markets that we need to see in order to get more confident in this move up. There is still a ton of damage to repair before we can confirm a new uptrend is at hand and we are watching very closely to see if the market can hold this rally. When you add all of this together, you get the underpinnings of a bottom in the markets, although we're not quite ready to ring the "all-clear" bell just yet.  Aggressive investors might consider dipping their toes into this pool of volatility.

 

Mark S. Starosciak, Managing Partner

Infinium Investment Advisors

 

Opinions and views expressed are provided for informational purposes only and should not be construed as investment or tax advice. Content on this website is not a recommendation to buy or sell any security or financial product, or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Consult your investment and/or tax adviser before making any investment decisions for its appropriateness in your personal situation.

Market Update: The Big Reset of Risk

08.10.2011

And summer is supposed to be the slow, boring time of the year for the markets! Here we are again with another monster sell-off to the downside after a vicious rally at the end of trading on Tuesday. Readers of our blog for the past two months will remember we sounded the alarm bell on June 15 "Market Update: Proceed with Caution" and, even with additional data to analyze since then, our Market Navigation Model is still negative. 

Why are we seeing these huge swings in the stock markets over the past couple of weeks and what should we do about it?

At Infinium, we believe it is very important to understand the landscape in order to protect your money during bad times, and make money in good times. Recent market action indicates that the big players in the markets - particularly the hedge funds that move around billions of dollars each day - are generally having a bad year and they are scared to death of finishing out 2011 with negative performance numbers. This is not a conspiracy theory, but rather, we believe this dynamic is causing a manic environment of violent moves as the Hedgies scramble to profit on the upside and rush to avoid more losses in down markets.

The problem for the average investor out there is this whipsaw action really has very little to do with the fundamental value of the companies that comprise the stock market, and is driven more on fear or greed. We discussed the idea that the market will trade on a variety of inputs in our recent post entitled, "Market Update: Post-Debt Crisis Outlook." As long as emotion rules the day, expect the roller coaster ride to continue and challenge the wisdom of tradtitional buy-and-hold strategies.

The Big Reset of Risk is happening right now and we maintain that investors should consider staying on the conservative side until the current level of uncertainty comes down. It's not time to play the hero just yet.

 

Mark S. Starosciak, Managing Partner

Infinium Investment Advisors

 

Opinions and views expressed are provided for informational purposes only and should not be construed as investment or tax advice. Content on this website is not a recommendation to buy or sell any security or financial product, or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Consult your investment and/or tax adviser before making any investment decisions for its appropriateness in your personal situation.

Special Update: Market Tumble

08.04.2011

In lieu of an extended commentary on the markets after yesterday and today's big tumble, we're including a link to a well-written summary by PIMCO's Mohamed A. El-Erian:

Why the big move lower - PIMCO

A few additional thoughts:

1) The markets can always go lower - we learned this lesson during the height of the financial crisis. What looked like a bargain was a recipe to lose another -20% in short order. Always know that until the price goes to $0.00, it can and may fall even more than you think it will.

2) Gold sold off Thursday - "I thought gold was a safe haven?!?!?!?" you ask. It is up until a certain point. When investors need to raise cash to meet margin calls, or overall want to be in cash and US Treasuries, then they will sell their gold, too. Believing gold will hold up through any downturn is to buy a fool's argument. We saw this in spades Thursday.

3) Bonds are still holding up - as we mentioned in our last post entitled "Market Update: Post-Debt Crisis Outlook", money continues to flow from stocks into bonds. Unlike in 2008 when bonds also were destroyed along with stocks, that is not the case now. If, however, we start to see investors flee bonds for cash and US Treasuries, that's when you could be looking at a complete bloodbath in stocks. Hopefully we never get there but it warrants special attention at this point.

This may be the most important aspect to the sell-off we have seen this week:

4) The technicals are severely hurt now - unlike the corrections we witnessed since the market low of March 2009, this one is different. Again, the market is trading more negative now than it has since the big losses of 2008-2009, in our opinion. Folks, there are many, many reasons to believe that this move lower will end soon and we'll get back on our feet (the rally we got Wednesday may have been the short-term pop we anticipated in our last blog post). Ignore the chart patterns at your own peril. Right now, the sell-off has dealt a devastating blow to the technicals and from our view, it will take a big, decisive rally in the next week to erase it. If we do not see the market repair itself soon, that could signal more pain for the remainder of the year.

5) Our Market Navigation model is negative - every Thursday we assess risk in the market trying to figure out should we increase risk, decrease risk, or keep it the same. After a month of positive signals, we saw the indicators flip decidedly downward Thursday. This fits our current thesis that cash is a great place to hide for certain clients right now until this storm passes. There's nothing wrong with prioritizing preservation of capital over growing your portfolio. Fortunately for us, we have a well-conceived method for this process (see Market Navigation).

As we have stated before, our role is to react to the markets rather than trying to predict them. Caution remains the theme of the day until we see the selling pressure abate and an identifiable bottom in place.

 

Mark S. Starosciak, Managing Partner

Infinium Investment Advisors

 

Opinions and views expressed are provided for informational purposes only and should not be construed as investment or tax advice. Content on this website is not a recommendation to buy or sell any security or financial product, or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Consult your investment and/or tax adviser before making any investment decisions for its appropriateness in your personal situation.

Market Update: Post-Debt Crisis Outlook

08.02.2011

Nothing like a whipsaw market to keep you interested this summer. In just the past six weeks, the S&P 500 has given us a +6% gain followed by the current slide of over -7%, which is the longest losing streak since October of 2008 (8 days in a row and counting which has only happened four other times since the early 1970s). We have not seen a similar level of up-and-down since last summer. Unfortunately, this feels a lot like Groundhog Day. However, let's look at the facts of the current state of the markets because it's easy to get swept up in the negativity so pervasive in today's news and potentially make a bad decision with our money.

Where are we now?

1) Most US stock markets are flat for 2011 - As of this writing, the S&P 500 is back to where it started in January, the NASDAQ is +.5% and the Dow is up by more than 2.5% year-to-date. This is nothing to write home about, agreed, and we're well off from the highs of the year from April. But certainly, it's not a complete disaster. We all like to see more money in our 401(k)s or IRAs today than we had yesterday, but performance so far this year is actually neutral, and making little-to-no return is far better than losing a lot, like we saw in 2007-2008.

2) Headlines are driving the markets -  Sometimes the markets trade on the fundamentals of companies and the economy as a whole, like growing sales or the fact that GDP is rising. Sometimes it trades on what we call the "technicals" where traders buy-and-sell purely on the price action they see. Currently, the markets are moving on the news headlines of the day which admittedly have been negative. The popular notion about the markets is that they look forward and anticipate what is down the road six-to-12 months. This timeframe is compressing over tha past several weeks and it seems like each news item causes a knee-jerk reaction, mostly to the down side. We saw this during the height of the financial crisis and it makes traditional investing quite difficult and frustrating indeed. Success in navigating this scenario depends on our ability to shut off the noise and realize that a fearful investor tends over-react. With fear and uncertainty running wild right now, this market probably sells off too much and creates a nice buying opportunity in the very near future our view. At the extremes, playing a contrarian and betting against the crowd can pay off handsomely, and our against-the-herd bias is telling us a short-term low could be imminent.

3) This is not a repeat of the Great Financial Crisis of late 2007 to early 2009 (so far) - One of the dynamics of the meltdown of several years ago was that investors abandoned anything risky - stocks, corporate bonds, and real estate to name a few. If the investment wasn't cash or US treasury securities, the value dropped significantly. Contrast that to the losses we are seeing in the markets which are contained to stocks for the most part. Gold and precious metals, bonds of nearly any type, and cash are all seeing increasing interest as a safe haven from the risk of stocks. The interesting aspect of this distain for stocks is that corporations are arguably in the best shape of any entity out there given their strong balance sheets (i.e. large cash amounts in the bank). The Federal and State governments, on the other hand, are swimming in debt but investors are falling over themselves to buy the perceived safety of government bonds. Doesn't really add up, does it?

What to do now?

In our post on June 15, 2011 entitled "Market Update: Proceed with Caution" we suggested that it's ok to raise cash and be conservative when the financial landscape is cloudy which continues to be the case. Although the US has reached a debt ceiling and reduction agreement this week, the markets still worry about a global slowdown in demand, particularly in China and the never-ending debt issues here and in Europe. By any measure, we are in a very murky period where these big picture problems are weighing heavily on the markets. Until we see confirmation that a low is in place - which could come rather quickly - remaining cautious with higher levels of cash can help even the most fearful investor in us sleep better at night.

 

Mark S. Starosciak, Managing Partner

Infinium Investment Advisors

 

Opinions and views expressed are provided for informational purposes only and should not be construed as investment or tax advice. Content on this website is not a recommendation to buy or sell any security or financial product, or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of firms affiliated with the author(s). The author(s) may or may not have a position in any security referenced herein. Consult your investment and/or tax adviser before making any investment decisions for its appropriateness in your personal situation.

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