Saturday, August 20, 2016

MAD Weekly Review

“If you are shopping for common stocks, choose them the way you would buy groceries, not the way you would buy perfume.” Benjamin Graham

That's what so many people get wrong.  The average person sitting around listening to those chumps Gundlach & Gartman sells their stock at the low, and always buy back at the highs. It's the retail investor's dilemma.  Sigh. If you listened to the all those "smart people" on TV this year you probably would have sold all your investments, only to watch them rise 21% from February 11 to the August 15 high(1810-2193). Of course none of that gain would show up in your account. So what do you do now? You end up buying back at the highs. This doesn't mean you'll lose money, but it does guarantee you'll have locked yourself into lower guaranteed investment gains.  Is there a time to sell? Absolutely. Just as their is a time to buy. But these decisions are different for every person based upon their goals, time horizon, risk appetite, and asset allocation. That's what I help people navigate through. I like to phrase it this way.  You buy stocks the way you shop at the mall, only buy when there is a sale. 

This is what seems like a tough time to buy into the market.  After a strong rally value is a lot harder to find. Especially among higher quality names. Oddly enough it's the high quality names that have been lagging recently. In other words companies with weaker balance sheets, and earnings power have been heading higher.  Quite the reversal from the beginning of the year when people couldn't bid up the prices of household names fast enough.

Of course if you are sticking to a game plan with automatic investments into index funds each month then don't worry(I know Jack Bogle wouldn't). Keep on track and let father time do its job. I'll detail a post next week on what to do with your cash if you wanted to start investing right now!


What'd The Fed Say?

We had the FOMC minutes released this week, and with no rate hike the markets headed higher the day of. Don't confuse no rate hikes as good, and rate hikes as bad.  While the initial reaction can be in either direction, history has shown in general equities are more likely to rise with higher rates.

Either way the market is finally starting to think rates might go up this year. In fact futures traders now foresee a 53% probability of rates getting hiked by December.  Of course this meeting wasn't the most clear on direction.  While some took the notes as "dovish", Fed Presidents William Dudley, and John Williams both came out recently stating they felt rates needed to be raised. It appears disagreement is growing.

Inflation data came in flat this week showing a mere 0.08% increase excluding food and energy.  While on the whole this is running beneath the Fed's target rate, it's just one of many indicators they watch. Yet the strong dollar and low energy prices have been able to keep a lid on prices, it doesn't mean everything is ho hum.

In fact we've seen some pretty income numbers recently, and as I noted earlier in the week we saw Industrial Production increase at a healthy clip.  The 0.7% increase was one of the largest since November 2014, and a lot of that weakness was attributed to the dollars rise during that time. With the dollar trending flat this year manufacturers have been able to cope much better. Eventually higher wages and production will work it's way through the economy.

To sum it all up the the markets were little changed this week despite what seemed like plenty of red on the tape. It appears the market is developing a little trend of late with up days followed by down days.

IndexStarted WeekEnded WeekChange% ChangeYTD %
DJIA18576.4718552.57-23.90-0.16.5
Nasdaq5232.895238.385.490.14.6
S&P 5002184.052183.87-0.18-0.06.8
Russell 20001229.821236.867.040.68.9

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