(This is a podcast summary. If you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on these topics, and please share this information with others who might benefit from our perspective.)
Market update
Technically, the market looks fine, but the fundamentals continue to be troublesome. We all know about the financial troubles in the EuroZone, and we have our own deficit spending and low interest rates in the U.S., which serve as an artificial stimulus in the market – again showing that our fundamental stability is not where it should be, in our opinion.
Greece has been a concern for us for weeks now, and we believe it will be for some time, as Italy, Portugal and others follow in its financially unsustainable footsteps. As we continue to look at fundamentals, European and Japanese economies are not growing, and the U.S. is growing very slowly. Job growth is weak, and political acrimony is very high in the U.S.
We know that the markets are up, and so technically it looks like our advice to be cautious has been wrong so far this year. However, we still believe that the fundamentals are going to come into play soon. In 2007 and 2008, the market ignored the fundamentals and only focused on the technical side, which was, as we all remember, a very dangerous environment. We still advise patience and caution, as we believe the markets will center in on their fundamentals this year.
Is Greece Fixed?
Speaking of fundamentals, this is a story that we believe shows what we are talking about in the markets. In Bloomberg yesterday we saw this headline: “Greek Rescue Leaves Risk of Default Alive in Europe as Austerity Deepens”
The story goes on to say: “Europe is still struggling to avoid the threat of default as investors warned Greece will soon risk violating the terms of its second bailout in three years.”
“Seven months of negotiations ended in the pre-dawn hours in Brussels with Greece winning 130 billion euros ($172 billion) in aid it needs to avoid a March bankruptcy. Any respite may prove temporary after it signed up to a program of austerity and economic reform aimed at slashing debt to 120.5 percent of gross domestic product by 2020 from about 160 percent last year.”
Our opinion is that the bail-out bandage is on, but it won’t take much to come off again. Remember, that Greece has been in a recession for five years. Frequent strikes and riots are a risk, tax revenue is still a difficulty, and so even though the headlines say that Greece is fixed, there is almost sure to be continued pain in this area. We believe that risk in the market remains high.
Read the blog tomorrow for an update on buying gold, and please listen to the podcast for more detailed analysis.
Greece is a relatively small country, but it is a microcosm of the larger credit and debt problems around the world, specifically in the Eurozone.
On Sunday the Greek parliament voted for severe austerity measures, which caused the riots we are now seeing. Greece politicians also voted to lay off a large percentage of government workers, and lower its minimum wage by 20%. We believe that the European economy will continue to contract with these forced austerity measures, which will cause the U.S. economy to slow down as well.
We just got to see President Obama’s new budget, which is calling for a 1.3 Trillion deficit for FY 2013 and not facing the big fiscal problems that the country really faces. We believe that whether President Obama gets re-elected in 2012, or we elect someone else, that we need to be watchful of politicians, who are unlikely to tell us the whole story or make necessary steps to avoid what is currently happening in Europe.
We advise caution and care with your money at this point in time. We suggest that our clients watch what happens in Europe, because the problems there are very serious, and might soon be the future for the U.S. Our number one priority for our clients is capital preservation, and we advise you to be cautious when looking at the markets and investing your hard-earned capital.
We all know that politicians make promises in order to get elected. The Greek politicians were told that if they didn’t vote for these recent austerity measures, serious problems would ensue. Austerity measures are now causing a lot of pain to Greek citizens, and the politicians will probably be somewhat insulated from this, despite the chaos and riots currently underway there.
Here in the United States, politicians are no different. President Obama’s new budget is calling for a $1.3 trillion deficit for Fiscal Year 2013, and it’s interesting to note that we’ve suddenly gotten used to “trillions” of dollars in deficit. What’s disturbing is that Europe is starting to really feel some pain because they can’t borrow any more money. With budgets like President Obama’s and the seeming lack of interest in dealing with these issues, the U.S. may see a similar problem and similar pain in the years to come.
We suggest that our clients watch what happens in Europe closely, because the problems there are very serious, and might soon be the future for the U.S. if we’re not careful. Our number one priority for our clients is capital preservation, and we advise you to be cautious when looking at the markets and investing your hard-earned capital.
(If you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on these topics, and please share this information with others who might benefit from our perspective.)
As many of you know our firm focuses a large portion of our research on income oriented funds and we recently came across an excellent article on Seeking Alpha about different ways to calculate yield in both equity and fixed-income funds. It explains the differences between SEC yield, 12-month yield, distribution yield, and average yield to maturity. We highly recommend that income investors who use ETFs read this post.
We’ve all heard this old adage, and to be certain, it is the key to income investing success. And while the truth of this statement can’t be argued, it’s definitely a lot easier to say than to actually do.
At Fabian Wealth Strategies, we take the concept of making your money work for you very seriously. But what does it actually mean to have your money working for you, and how can we help you achieve that noble goal?
As a fee-only investment advisor specializing in helping clients preserve their capital while also generating the income they need to live the life they desire, we take both of these objectives extremely seriously. However, conventional Wall Street wisdom usually pits the twin objectives of capital preservation and high income generation at odds.
According to the official party line, you can either A) preserve capital by sticking your money in “safe” investments that offer a pitifully low yield, or B) put your money at risk in dividend stocks and other high-yield equities and be willing to wait out the inevitable market declines that are inherent in these kinds of securities.
Well, we think this conventional wisdom is flawed, and we know there’s a better way to manage your income assets. You see, instead of the either-or choice of safety vs. yield, we’ve developed a strategy designed to maximize income while at the same time managing the various risks inherent whenever you put money to work in the market.
We call it our “Ultimate Income Strategy,” and when you’re finished reading this report, you should have a good sense of how the strategy works, and more importantly, how it allows your money to work for you.
If you’ve been trying to generate high income but have failed to keep your money safe from volatile market swings, then this report is aimed straight at you.
In The Ultimate Income Strategy, you’ll discover why the right mix of income-generating assets—along with the expertise to navigate in and around changing market conditions—are two key components of a truly successful income program.
By downloading this FREE special report, you’ll find out the secrets of how we manage an income portfolio to deliver the capital preservation and high yield every income investor is after.
The biotechnology sector has been rising as quickly as a child’s fever. The key question is whether this suddenly hot sector will slow down or possibly cool off in the coming days and weeks. Part of the answer to that question will depend on the overall movement of the market. With the recent rise in stock prices overall, it understandably leads to doubt that the upward momentum will continue unabated. If you are intrigued enough to buy a biotechnology fund, one that you should consider is SPDR S&P Biotech ETF (XBI).
The fund’s objective, before expenses, is to match the returns and characteristics closely of the S&P Biotechnology Select Industry Index (ticker: SPSIBITR). The exchange-traded fund (ETF) is designed to provide portfolios with low portfolio turnover, accurate tracking, and lower costs.
SPDR S&P Biotech ETF held 44 different biotechnology positions as of Feb. 14. Its top 10 holdings, and their respective weights in the fund on the same date, were: Regeneron Pharmaceuticals, 5.56%; Dendreon Corp., 4.74%; Amylin Pharmaceuticals Inc., 4.39%; Medivation Inc., 3.80%; Gilead Sciences Inc., 3.77%; Incyte Corp., 3.62%; Cepheid, 3.52%; Ariad Pharmaceuticals Inc., 3.49%; Alexion Pharmaceuticals Inc., 3.46%; and Vertex Pharmaceuticals Inc., 3.32%.
The pharmaceutical industry is high-risk and high-reward in the development of new treatments for diseases. Big pharmaceutical companies often are enticed to buy smaller companies that is developing promising new drugs to treat conditions that potentially could develop a large and highly profitable customer base. For that reason, biotechnology companies can appreciate in value by developing profitable new drugs, or as takeover candidates.
I am cautious about investing in equities right now, but SPDR S&P Biotech ETF is on my radar screen as a fund to watch in case the market pulls back and offers a better buying opportunity than we have today. The market has produced a big jump in recent weeks, so caution in allocating to new positions seems warranted right now.
We’ve been blogging and podcasting for some time about the uncertainties in the market right now, and so we thought we’d expand on fixed-income strategies today.
We advise three broad investment categories for income:
Fixed income (bonds)
Dividend equities
High-yield alternatives
We think that asset allocation is what makes or breaks an investment strategy, and we are advising our clients to put a high allocation of their portfolio into fixed income at this time. We have several vehicles for this and can advise you in more detail if you call our office. Please call us at 800-391-1118 for a free portfolio review.
We also believe that now is a bad time to get into dividend equities, and we are advising our clients against saddling their portfolios with over priced investment vehicles at this time. Instead of the either-or choice of safety vs. yield, we’ve developed a strategy designed to maximize income while at the same time managing the various risks inherent whenever you put money to work in the market.
Thanks for reading our podcast summary. If you want more details on what is discussed on the blog, please listen to the full podcast here.
Global/European debt crisis
For the last 20 years, we’ve watched the entire world build masses of credit and debt, and in the last few years we’ve seen the debt shift from the private sector to the public sector.
Now, we’re seeing credit unwinding in Europe and specifically in Greece. On Sunday the Greek parliament voted for severe austerity measures, which caused the riots we are now seeing, as Greece continues this cut-back. Right behind Greece is Italy, Spain and Portugal, which means that the European economy will continue to contract. We think that this debt crisis will cause economic contractions all over the world, which will cause drops in the stock market.
European central banks have managed to keep things together with massive borrowing and printing of new money, which we believe is unsustainable. Despite high markets (what some people might see as a missed opportunity) we think that these economic forces will continue to gyrate and it remains a risky market. Our suggestion to clients and readers is to wait this one out, and see how the global economy fares through the European crisis. We believe that the fundamental foundation of the global economy is rocky and still calls for capital preservation to be and low-risk options. (For more information on the kinds of options we suggest, check out our special report here.)
If you want more details on what is discussed in this video update, please listen to the full podcast here.
Despite the markets continuing to march higher, we are still encouraging caution in your investments. We want to keep an eye on our economic fundamentals, which we believe are not strong, and will soon force what looks like a bull market into a downturn. For this reason we advise keeping a high volume of cash in your portfolio.
Even with a high stock market here in the U.S., Europe is still in a serious debt crisis. Every day we hear about another country that is entering a recession, depression or instability due to this economic crisis. Because the European Union is the largest economic power in the world, it’s crucial to understand the risks and continue to face these problems with a defensive posture.
Speaking of a defensive posture, this week we are discussing our last installment of our personal finance exercise series, which today deals with life insurance, health insurance and annuities. For deeper information about our personal finance exercises, please check out our in-depth blog-post from yesterday on this topic.
Thanks for watching and please pass this video on!
We believe that the most successful people are on top of the issues of the day. Being well-informed and staying well-organized will help you to succeed, so for the next few weeks we will be outlining six exercises for you to stay informed and ready to make good decisions. Those six exercises are:
Making a calculation of your net worth
Taking inventory of financial assets
Understanding your cash flow projections
Examining your expenses
Making sure you have an updated estate plan and living trust
Taking stock of all insurance policies – health, life, long term care, annuities, etc.
This week, we are talking about insurance: health insurance, life insurance and annuities. Insurance is an essential expense, and we encourage everyone to take a look at what you own, what you have and what you need.
There is such a thing as being “over-insured”. Sometimes life insurance can move from being an asset to becoming a liability, so getting a professional to look over your life insurance and what you need is essential. Todd Clucas is our insurance expert on staff and can help with any issues at 888-300-3684.
Annuities are a very powerful tool, but we believe that they are sometimes over-sold. Not everyone needs an annuity, but it’s important to know if you do need that option, and whether it’s worth the investment. Again, please get in touch with us if you have any questions about this or any other part of our personal finance exercise series.
Once you know what you have to can set clear, reachable goals. Tune in next week for more on Doug Fabian’s Monday Market Update. (Also, if you read this blog and enjoyed it, listen to Doug’s podcast this week for even more details on these topics, and please share this information with others who might benefit from our perspective.)
