March 28, 2013

Dow hits a new record, so what?

Posted in Finance, Uncategorized tagged , at 9:36 PM by Robert Barone

By Sheyna Steiner · Bankrate.com
 
Wednesday, March 27, 2013
 
Start whistling a happy tune because happy days are here again. Right? The Dow Jones industrial average closed at a record high again. On Tuesday, it topped off at 14,559.65.
 
The more relevant index, Standard & Poor’s 500 index, closed just 2 points shy of its all-time high of 1565.15 set in October 2007, Reuters reported in Tuesday’s story, “Wall Street climbs on economic data; S&P near record close.”
 
There seems to be a lot of preoccupation in the financial media with record highs. Sure, it makes a snazzy headline. But what does it mean?
 
For proponents of technical analysis, certain prices seem to be harder to break through than others — either on the way up or the way down. They’re known as levels of support or resistance and represent psychological barriers. They tend to be numbers around which investors make decisions either for or against a certain security.
 
For the rest of us, record highs may not be as significant. The stratospheric heights the indexes are reaching these days indicate two things, according to Robert Barone, chief economist and portfolio manager at Universal Value Advisors in Reno, Nev.
 
“It tells us one thing for sure: Don’t fight the Fed,” he says. One side effect, bug or feature of the quantitative easing programs from the central bank has been to inject vast quantities of money into the financial system — much of which has gone into equities.
 
“The Fed has liquefied at least the U.S. if not the whole world, and we have a lot of money sloshing around looking for a return,” says Barone. Read more about that in “How the Fed fuels stock prices.”
 
Monetary policy may not be the only driver. It could be part of the so-called new normal, the post-financial-crisis reality. Relatively sluggish economic growth may be par for the course now, says Barone. Instead of looking back to 2006-2007 and saying that gross domestic product and unemployment should be at those levels, maybe the economy simply doesn’t have the growth potential that it once did.
 
“Job openings are rising but the jobs aren’t being filled. There is a shortage of skilled labor. Capacity utilization in the industrial sector is approaching what it was in ’07,” says Barone.
 
“But we’re not happy because we have 7.5 percent unemployment, and we think it should be 4 percent or 5 percent. Putting it all together, it tells you that maybe the stock market isn’t too high,” he says.
 
What do you think? Is it too high? Where should it be? What’s going on? There are so many questions.
 

Robert Barone (Ph.D., economics, Georgetown University) is a principal of Universal Value Advisors, Reno, a registered investment adviser. Barone is a former director of the Federal Home Loan Bank of San Francisco and is currently a director of Allied Mineral Products, Columbus, Ohio, AAA Northern California, Nevada, Utah Auto Club, and the associated AAA Insurance Co., where he chairs the investment committee. Barone or the professionals at UVA (Joshua Barone, Andrea Knapp, Matt Marcewicz and Marvin Grulli) are available to discuss client investment needs. Call them at 775-284-7778.

Statistics and other information have been compiled from various sources. Universal Value Advisors believes the facts and information to be accurate and credible but makes no guarantee to the complete accuracy of this information.

 
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December 10, 2009

Time to Pare Some Gains?

Posted in Banking, Finance, investments, Uncategorized tagged , , , , , , , , , , , at 7:03 PM by Robert Barone

Remember how you felt when the stock market plummeted 4500 gut wrenching  Dow points in the three short months September to November last year? This was after a quick 2000 point drop earlier that Spring.

Your heart stopped pounding and you took the tourniquet off your 401K when the Dow rallied back almost 2000 points into the first week of January, 2009. Remember what happened next? (Or did you block it out?) A sickening, bloody, unprecedented, two month plunge down 3500 Dow points to levels not seen since late 1996. 1996? Your 401K was a pup. Yet, in March, 2009 you swore off stocks as you swore at your broker.

Well, apparently you did forget. Or at least your investing brethren forgot. The Dow has rallied back 4,000 points, your 401K is up and walking around and Investor’s Intelligence shows almost 3-1 bulls to bears. Only 17.6% bears.  The lowest number since the highs in 2007.

2007. It’s fun to remember those days. Your retirement account was sprinting from stock to stock and you named your new kid after your broker,”Rison.”

They once asked Baron Rothschild how he made his fortune in the stock market. He said “I always sold too soon.”  

Is it too soon to sell some stocks? Take a little off the table? The Dow and NASDAQ are up between 65% and 70%, respectively. Some stocks have doubled, tripled and even quadrupled off their lows.

Perhaps you should look at the stocks in your portfolio that are at 52 week highs. The ones with little or no dividend yield and high P/E ratios. The ones that have 20-30% fewer earnings this year than last yet, and project pallid 2010 earnings. If for some reason (it’s called Momentum) they are sporting the same stock price as last year, it might be time to pare them.

A little pruning might calm you in case next year’s recovery doesn’t pan out as the Government cheerleaders say it will. Besides, in the next drop you will have some cash to deploy.

My mother used to advise me to always leave a party early. The hostess appreciates it, and you will always be invited back. You never want to turn down an invitation to invest when Mr. Market offers you a stock that is on sale after a sell off. Having the cash to deploy then will always be a good memory.

Fred Crossman, J.D., C.P.A.

December 9, 2009

Mr. Crossman is a principal of the Thunderbird-Tahoe Fund, a long/short hedge fund in formation.

The mention of companies in this article should not be considered as an offer to sell or a solicitation to purchase any securities of the companies mentioned.  Please consult an Ancora West Investment Professional on how the purchase or sale of securities can be implemented to meet your particular investment objectives goals.Ancora West Advisors LLC is a registered investment adviser with the Securities and Exchange Commission of the United States.  Ancora West Advisors is an advisor to the Thunderbird-Tahoe.  A more detailed description of the company, its management and practices are contained in its registration document, Form ADV, Part II.  A copy of this form may be received by contacting the company at: 8630 Technology Way, Suite A, Reno, NV 89511, Phone (775) 284-7778