Biegel Waller Investment Advisory March 2014 Commentary
Ironwood Quarterly Insight 8.2.12 [Autosaved]
1. Ironwood Quarterly
Market Insight
Presented by: Cean Rogers CFA
Date: August 2nd, 2012
Ironwood Wealth Management
4650 E Cotton Center Boulevard
Suite 130
Phoenix, AZ 85040
www.ironwoodwm.com
2. Disclosures
This information being presented herein does not consider your particular objectives or
financial situation and does not make personalized recommendation. This information
should not be construed as an offer to sell or a solicitation of an offer to buy any security.
The information contained herein is obtained from sources believed to be reliable but its
accuracy or completeness is not guaranteed. Any opinions expressed herein are subject to
changed without notice. An index is a composite of securities that provides a performance
benchmark. Returns are presented for illustrative purposes only and are not intended to
project the performance of any specific investment. Indexes are unmanaged, do not incur
management fees, costs and expenses and cannot be invested in directly.
Past performance is not a guarantee of future results.
Securities offered through NEXT Financial Group, Inc., Member FINRA/SIPC
Ironwood Wealth Management is not an affiliate of NEXT Financial Group, Inc.
Investment Advisory Services offered through
Ironwood Wealth Management, LLC
The S&P 500 Index is a widely recognized, unmanaged index of common stocks generally
representative of the U.S. stock market. Past performance is no guarantee of future
results. Indices are unmanaged, statistical composites, and their returns do not include
sales charges or fees an investor would pay to purchase the securities they represent.
Such costs would lower performance. Index returns include reinvestment of all dividends.
It is not possible to invest directly in an index.
3. Topics to Cover
• Returns and environment for Q2 2012
• What lies ahead for the 2nd half of 2012
• Investment Implications
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4. Q2 Results and Environment
• Equities muddled through the 2nd quarter of
2012(S&P 500 down 2.8%, Russell 2000 lost
3.5%, MSCI EME lost 8.8%, MSCI EAFE down
6.9%)
• 10 year treasury rate decreased from 2.23% to
1.67%. A decrease of 56 basis points!
• ISM numbers came in weak in June
• US job market slowed quickly in the 2nd quarter
(average monthly non farm payroll increased
75,000 versus 210,000 during the 1st quarter)
Source: JP Morgan Asset Management, US bureau of labor statistics
7. Key Statistics
Jobs – US economy created only 75,000 new jobs on average per month in Q2
Initial Jobless Claims –Q1 2012 weekly average was just under 370,000 claims,
most recently for the week ended July 7th we had 350,000 jobless claims,
which is the lowest number in 4 years (since then 388k, 357k and 365k this
morning)
ISM Non Manufacturing – 52.1 for June, just above 50 which means we are
expanding very slightly
ISM Manufacturing – 49.7 for June, 50 or higher means we are expanding, we
are in a “wait and see” mode.
GDP – Q1 GDP came in at 2% and the first estimate for Q2 is 1.5% both much
lower than Q4 2011 GDP which came in at 4.1%, once again we are in “wait
and see” mode
Sources – Department of Labor Statistics, Institute of Supply
Management, Bureau of Economic Analysis
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28. Next Steps
• Review any questions you may have about your financial situation
• [Custom Bullet]
• [Custom Bullet]
• Schedule a follow-up meeting
[Consult an attorney for necessary disclaimer, copyright and other legal text.]
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29. Next Steps
• Review any questions you may have about your financial situation
• [Custom Bullet]
• [Custom Bullet]
• Schedule a follow-up meeting
[Consult an attorney for necessary disclaimer, copyright and other legal text.]
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30. Next Steps
• Review any questions you may have about your financial situation
• [Custom Bullet]
• [Custom Bullet]
• Schedule a follow-up meeting
[Consult an attorney for necessary disclaimer, copyright and other legal text.]
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31. Investment Implications
Overweight
• Commodities (FED easy too long)
• International Equities (valuations look attractive
and dividends are high)
• Floating Rate Bonds (not as interest rate sensitive)
• Market Neutral
Underweight
• Fixed Income (long duration)
• Treasuries
• Precious Metals (GOLD)
• Cash
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The main problem with our fiscal situation is the right graph….the government is receiving 15.7% when they average close to 18% and they are spending 23.4% when we average about 20.5%...this can’t continue to happen….
Read slide and explain each of the sections of the cliff
Baseline projections assume that we go off the cliff….the alternative scenario uses the CBO alternative scenario for spending and president Obama’s budget for revenues….realistically we’ll probably come in somewhere in between.
International markets performed worse than the US market. Mainly because of the sovereign debt crisis in Europe.
The ECB has come to the rescue for now….they followed the FED’s model of easy monetary policy during this recent debt crisis…look how the size of their balance sheet has grown recently…it looks eerily similar to the U.S. in late 2008….don’t fight the monetary policy makers around the world
Fiscal Union is still the problem with the eurozone and it will be interesting to see what comes out of this crisis. We’re hearing more and more about the possibility of forming a fiscal union
Markets around the world have calmed down ever since the ECB came out with their LTRO (Long-Term Refinancing Operation). It is a program that was very similar to what the U.S. did in 2008 to east the lending markets….you can see how sovereign yields have come down since the 1st LTRO….but more recently we have seen a slight increase in both Spain and Italy
Valuations worldwide are a historically low levels….read slide
Dividends around the world are very strong
Cash is paying next to nothing….and there is a ton of it sitting on the sidelines earning little interest….
Fund flows into equities has been anemic at best….we believe that most people that wanted to sell have already done so….this will cause upward pressure on the market as people enter again, at some point…we just don’t know when that time will be…this graph also shows the massive inflows into bonds…this is one reason that bonds have performed so well recently….we believe this could have some downward pressure on bond prices if investors start to exit
More valuation metrics….read slide
lagged P/E ratios we still have a long way to go…read slide
Low P/E ratios don’t necessary equate to strong stock market performance in the short run….however if we expand this to 5 year, we can see a clear relationship that gives a something to be excited about in equities over the next 3-5 years….so with all of this taken into account we believe equities are still undervalued and we have some opportunity in the asset class…what will be the one of the main drivers of this P/E expansion??
Bonds have experienced a huge bull market….Bond rates have been declining for 30 years now….investors may not see the risk of fixed income instruments…at some point the FED will stop pushing down rates….when this happens we could see some violent moves in the bond markets…increasing interest rates would be bad for most fixed income instruments…we believe there could be a bond “bubble” brewing…. You’ll notice that negative real yields don’t last for long periods of time…
Go through the effect of a 1% interest rate change on some fixed income areas….
