« April 2008 | Main | June 2008 »

May 29, 2008

The Oil Bubble

"In last week's commentary, we noted that the powerful stock market rebound from the low of mid-March was now likely to give way to a volatile, but range-bound summer leading up to election. Last week's performance likely marks the start of this summer of volatility, which is typical of presidential election years. This big contributor to last week's stock market pullback was the sure in oil prices".

To see the rest of Jeff Kleintop's article, please click on the link below:

http://www.mwboone.com/blog/LPL_WeeklyCommentary_5_27_08.pdf

 

Posted by MWBoone & Associates at 08:51 AM |

May 27, 2008

What Is Momentum Investing?

Most stocks make some kind of decisive move every year. This move, according to the philosophy behind momentum investing, follows the 80-20 adage: The stocks exhibit about 80% of their movement over 20% of the time. There are always those high flyers that seem to have 1 to 2 years of hyper-performance, but, generally speaking, most stocks have a “burst” of movement during a relatively short period. Fortunately for investors, different stocks seem to move at different times.

The goal of the momentum investor is to try to capitalize on diversified portfolio of fast movers. The key to momentum investing is to find the stocks that are moving now and be in on them while they are moving. Ideally, the momentum investor tries to catch the biggest waves, jump on at the “perfect” time, and get off at the “perfect” time — which would be just before the momentum reverses or, more likely, just after the momentum reverses. Perfect timing is impossible, of course, but getting in near the beginning of the upward momentum and getting out before it stops or shortly after it reverses is the ultimate objective.

The Faster They Move, the Harder They May Fall

There is a fair amount of risk in attempting this kind of investment because stocks with momentum are typically the ones that have come the farthest the fastest. Often they will be at new highs and sometimes very pricey, and the inevitable correction can be swift and painful. But successful momentum investors typically are not afraid to buy a stock at a new high because, as William O’Neil, publisher of Investor’s Business Daily and a leading momentum guru, says, a stock has to reach a new high to go higher. Just keep in mind that not every trade is going to be successful, and one of the important caveats for momentum investors is to take your losses quickly.

Personality Traits of the Momentum Investor
 
Those who are attracted to momentum investing expect big rewards and they expect them quickly. There is perhaps no equity investing style that offers the potential to earn as much — as quickly — as does momentum investing. Most of the extraordinary gains reported by momentum investors come from those who switch among many stocks over a period of a year, trying to capture gains from as many as possible. Those who do it well often see exceptional returns. But with great reward usually goes great risk, so it should come as no surprise that momentum investing is one of the higher-risk strategies. Stocks that are on a momentum roll frequently have had extraordinary earnings announcements, and any hint that the earnings growth might not continue can stop them in their tracks on any given day. As a result, momentum stocks can take some pretty big drops.

Perhaps the most important characteristic of the momentum investor is the need for discipline. Because of the need to get in and out of a stock quickly, a momentum investor must have the discipline to act decisively on entry and exit signals, even when the exit signal is telling you to get out of a stock you’ve only recently entered and you know you’ll suffer a loss. Learning to take quick losses can save you from suffering larger losses in the future. In the quick-moving, short-term world of the momentum investor, one who hesitates or second-guesses him or herself will likely fall short of one’s goals. Momentum investing requires a heavy time commitment, probably more so than any other major style of stock investing. When building a momentum portfolio, you have to survey dozens of stocks in order to identify those with the best momentum, and you must be prepared to act quickly in order to enjoy as much of the ride as you can.

But with a portfolio of momentum stocks, you can’t afford to rest on your laurels. Once you have invested, you must look at daily charts of the stocks you own so you can get off when the ride is over. Also you should monitor a watch list of potential stocks, so that when you see one that has better momentum characteristics than a stock you currently own, you can make a quick switch. That means comparing a lot of stocks and industry groups on a daily basis. While charting skills are important, the best momentum runs normally follow good earnings reports, so you can’t be just a chart person; you will also need to compare earnings reports, so your quantitative skills should also be good.

Compared with value and growth investing, momentum investing scores somewhat lower in terms of the degree of confidence the investor should have. As a momentum investor, you must act quickly and decisively, but once you’ve learned to spot a momentum stock and learned your rules for entry and exit — in other words, once you’ve built a “mechanical trading system”— you don’t have to make tough judgment calls on a daily basis. Your system will make those decisions for you. In that sense, momentum investing is basically a juggling act. You have to keep a lot of balls in the air at one time and know when to let a ball go and when to exchange a red ball for a green one.

Momentum investing is a style for investors who don’t like agonizing over the kinds of questions that often stymie growth and value investors: Is this a reasonable price for this level of earnings growth? Has this undervalued stock truly begun a recovery? Momentum investors can just go by the numbers: Buy when the signal says buy; sell when the signal says sell. The key is to monitor your stocks daily for signals that indicate an appropriate time to sell.

 

 

Posted by MWBoone & Associates at 04:13 PM |

May 23, 2008

Aimée Huff, CFP, CFA, in the Seattle Times

"Aimée Huff, a certified- financial planner and chartered financial analyst with MWBoone and Associates, of Bellevue, is working with Glenn and Laurie Griffin to produce a plan that will allow them to pay for their daughter's college, retire in 10 years and meet the purchase of a new house." 

To see the the rest of these Seattle Times articles that highlight Aimée Huff CFP, CFA, and her work with the Griffin's, please click on the links below: 

http://seattletimes.nwsource.com/html/businesstechnology/2004390839_pfmakeover04.html

 

http://seattletimes.nwsource.com/html/businesstechnology/2004390841_pfmakeoverbar04.html

Posted by MWBoone & Associates at 07:54 AM |

May 22, 2008

My Financial Adviser Is Losing Me Money!

"Don’t lose faith in your planner just because he keeps you invested in a down market. Ask yourself these questions first."

A CNN Money article on answering questions that you may have on investing with a financial advisor during a down market. To see the rest of this article, please click on the link below:

http://finance.yahoo.com/focus-retirement/article/104946/My-Financial-Adviser-Is-Losing-Me-Money?mod=retirement-preparation

 

Posted by MWBoone & Associates at 10:52 AM |

May 21, 2008

Before the Summer Hurricane and Tornado Season Begins, Develop Your Own Disaster Plan for Home and Business

Here are some key planning ideas that will help you and your family emerge more effectively from any weather-related disaster:

Call your insurance agents. We say agents in case you deal with more than one agent for home, life, health, auto and business coverages. Talk to them about whether they feel your coverage is adequate based on any number of emergency scenarios. If you had a huge medical bill, could you pay your deductible and any uncovered costs out of your own reserve funds? How’s your life insurance for you and your spouse? Is your home insurance based on the highest replacement value figures for your neighborhood? If you are in a designated flood area, is your insurance up to date? While you’re at it, see if your insurance will cover temporary relocation and car replacement if you need it.
Make sure your reserve fund is healthy. Think of all the people on the Gulf Coast who are still living in government-provided trailers and still fighting with their insurance companies. That may not be your situation, but if you had to temporarily relocate, could you handle the expense until your insurance funds arrived? Could you continue to pay your mortgage if a storm knocked out your place of business as well? Weather disasters usually mean huge cash flow disasters as well.

Develop a “what if” list.  Be as imaginative and as negative as possible about this. Consider every possible event that could hurt you, your family, your home or your business – what hurts one automatically hurts the other. The first question – what if you died or became disabled tomorrow? Could your family continue to support themselves while they worked through the aftermath? A good way to make the list is to draw a line down the middle, and on the left side list every possible risk, while writing every possible remedy for those risks on the right side. 

Set contingencies in motion. If you had to relocate to a particular relative’s home, does that relative know you’d be knocking on his or her door? Would all your family members know where to meet if you were separated? Close the loop with all friends, family and service providers you’d need for support if you had to rely on them – and set up an effective communications plan to go into effect the moment trouble happens.

Plan an escape kit. If you had to leave home within 2-3 hours, what would you take? Key financial and insurance documents would be a must, but you might consider consolidating all that paperwork in one place for speedy packing. Also, it might make sense for all family members to make a list of things they’d pack in a hurry as well – put
a time on your calendar each year for everyone to update their list.  If you have financial or work data on computers, it’s important to regularly back up that data on separate drives that could be packed up and downloaded to a portable laptop offsite. Also, don’t forget to plan for your pets if you have them – they’ll need their supply of food, toys and medication if necessary.

In business, protect yourself first. If you’re a good boss, you care about your employees and your customers, and we’ll get to them in a moment. But the first step in a business disaster plan is to review your list of worst-case scenarios and review how you would protect your home, your health, your retirement, your kids’ education and your estate priorities first. If your business fails for any reason, all of those critical necessities could be jeopardized.  Make sure you have appropriate life and disability insurance coverage in addition to a current estate plan.

Protect your employees second.  In a natural or man-made disaster, lives can be lost. But if you’re closed for weeks or months, key employees may leave and that might be a greater long-term danger to your company. Talk to your insurance company about every physical and employment risk your staff could face in a disaster and see what safety nets are available.

Protect your customers third.  If you faced a lengthy business interruption, how would you serve the customers who are depending on you? Are there specific customer service and inventory procedures in place to keep them informed, supplied, and most important, loyal once you’re up and running again? Do you have options for alternate office and production space as well as resources for temporary workers?

Protect your information.  You don’t have to be some high-tech firm to understand the value of proprietary information that keeps your company running. From proprietary databases and research to customer credit information, these data are critical for your business. What’s to keep a burglar from stealing your computers and taking all your valuable financial, inventory and customer data with them? Better yet, what’s to keep a computer hacker from stealing the information and leaving the machines behind? Data security and backup procedures are increasingly important as disaster-planning priorities. Get help finding the protective measures that fit your industry. 

2008 — This column is produced by the Financial Planning Association® (FPA®), the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning. 

Based in Denver, Colo., FPA has over 100 chapters throughout the country representing more than 28,000 members involved in all facets of providing financial planning services.  FPA is the community that fosters the value of financial planning and advances the financial planning profession and its members demonstrate and support a professional commitment to education and a client-centered financial planning process.  For more information, visit www.FPAnet.org.

Copyright © 2008 MWBoone and Associates All Rights Reserved. MWBoone and Associates is a Registered Investment Advisor Investment Management services are not available through this web site but are described at www.mwboone.com. Securities offered through LPL Financial FINRA/SIPC.

Posted by MWBoone & Associates at 10:24 AM |

May 20, 2008

The Fed is not Printing Money

"A number of economists have been asserting that the Federal Reserve (the Fed) has engaged in a prolonged bout of money creation, creating a "sea of liquidity" tha has been expected for some time to generate a sizable rise in inflation. My problem with these asertions is that I cannot see the sea.

While it is true that broad money measures, notably Money with Zero Maturity (MZM) and Broad Money(M2), have experienced higher growth over the last year or so, the Federal Reserve balance sheet (Reserve Bank Credit), bank reserves plus ....."

 To see the rest of Lincoln Anderson's Market Update, please click on the link below:

http://www.mwboone.com/blog/LPL_LincolnMarketUpdate_May_15_2008.pdf

Posted by MWBoone & Associates at 08:24 AM |

May 16, 2008

Inflation Infactuation

"As we have highlighted in recent commentaries, the widely watched challenges such as a sluggish economy, falling home prices, and rising unemployment are all lagging indicators of stock market direction. One of the key factors we are watching to assess the sutainability of the stock market rally over the past couple of months is the outlook for inflation. The year-over-year pace of inflation, excluding energy and food prices, remains in line with the 10 year average and in the middle of the 2-3% range it has been for the past three years".

To see the rest of this Commentary from LPL's Jeff Kleintop, please click on the link below:

http://www.mwboone.com/library/articles/lpl_weeklymc_5_15_08.pdf

Posted by MWBoone & Associates at 01:19 PM |

May 15, 2008

Weekly Economic Commentary

"Last week's muted data calendar was largely ignored as financial markets fretted about rising oils prices and another leg down for financial firms. On balance the data that was released suggested that first quarter real GDP will be revised up to over 1.0%, from the originally reported +0.6%, and that GDP growth in Q2 2008 is still tracking to the positive side of zero".

To see the rest of this article from LPL's John Canally, please click on the link below:

   http://www.mwboone.com/library/articles/lpl_economic_update_5_12_08.pdf

Posted by MWBoone & Associates at 12:29 PM |

May 14, 2008

Estate Planning for the Worst Possible Scenario –

The reason why some parents hesitate to make an estate plan is understandable.  It calls into consideration your worst fears – the possibility of your death or your kids facing life without one or the other parent.
But what about an even worse scenario – the possibility that you and your spouse could die at the same time or in close succession by accident or illness.  One might be reminded of the situation of actor Christopher Reeve and his wife Dana; Dana died of cancer within two years of her husband’s death and they left a teenaged son behind.
                                                                                                                             
From the standpoint of individuals, planning generally gets done with the mindset that one parent will be left to raise any minor children and continue earning and investing for the family. But in reality, you both should consider a plan that accommodates the absolute worst scenario -- the loss of both parents and what would happen to your kids’ lives and finances if that happens.

Most financial experts advise you to revise your estate plan every five years or as lifestyle issues change. It’s important to get help for the financial aspects of your estate plan as well as legal instructions for the support, education and general well-being of your kids. Here are some general topics to explore with tax and estate attorneys as well as a financial planner including but not limited to as CERTIFIED FINANCIAL PLANNER™ professional:

Talk first about who would best raise your kids: This is clearly the most important decision you’ll make. You need to find the best person – or couple – to raise your kids if something happens to both of you. You know better than anyone else what hard and soft skills that will require – they need to be people whose own lives won’t blow apart by adding your kids to the mix. It’s also wise to name alternates in case the people you name have a change of heart for any reason, or if something happens to them.

Then talk about who will handle the money: After you choose your guardian and your alternate, you need to build a financial plan that will support those decision makers in the best way possible. Many experts advise you to split the responsibility of handling the kids and the money. This is a personal decision, obviously, but the concept is a good one. Absorbing someone else’s kids into a new family in a tragic situation is a tremendous responsibility with plenty of margin for error. For some time, it will be a full-time job. The appointment of a sharp financial trustee will allow you to allocate resources for day-to-day living expenses, education expenses and if there’s money left over, for investment.

Start thinking through an estate plan: For most of us, it’s going to be a challenge simply to stretch what we have to help our kids after we die. After all, when we go, there goes the weekly paycheck. For individuals who own businesses or have more substantial assets, the idea is to protect first those assets and then continue to grow them as investments. The trustee and whatever advisers you attach to this process will be key. But the first step is to get some general advice on managing the assets you can leave behind or backstopping your kids’ anticipated needs with various insurance options you can put in place now.

About those insurance options:  Some married couples may elect to buy insurance together within the same policy. These policies take the form of either a joint first-to-die or a joint second-to-die (survivorship) design. With first-to-die, the death benefit is paid at the death of the spouse who dies first. With second-to-die, no death benefit is paid until both spouses are deceased, and that makes them a useful estate-planning vehicle in the right situation. Ask which policy choices are right for you from a qualified agent.

Make sure you figure this a worst-case scenario into your education savings plans: Elementary, secondary and college education costs – particularly if all are in private schools -- need to be factored into the estate picture, and a financial expert, such as a CFP® or other professionals, might be useful in getting a savings plan in place while you’re alive that covers all possible events.



April 2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community.

Copyright © 2008 MWBoone and Associates All Rights Reserved. MWBoone and Associates is a Registered Investment Advisor Investment Management services are not available through this web site but are described at www.mwboone.com. Securities offered through LPL Financial Member FINRA/SIPC.

Posted by MWBoone & Associates at 02:14 PM |

May 08, 2008

A Long-term Care Insurance Primer

As millions of Baby Boomers head into their retirement years, it’s surprising how few actually know that the government provides little more than a few weeks of financial support for home-based or nursing home care when the average person needs it for at least a year.
A 2006 Genworth Financial Survey says the national average private room rate at a nursing home – the most expensive care option – was $194.28 per day/$70,912 annually.

Long-term care insurance (LTC) may be one solution for those who need to bridge the gap between their savings and the actual costs they’ll face. 

Determining and paying for long-term care is almost too complex a topic to be covered in a short article like this, which is why it makes sense to discuss your individual situation with a CERTIFIED FINANCIAL PLANNER™ professional. Here are some of the questions you need to answer before investing in long-term care insurance or other options:

What resources do you have?  We’re not just talking about money here. While care giving puts a strain on family, it’s important to consider whether family and friends are truly willing and able to help with your care, which can provide a considerable financial and emotional benefit.  Also, if you live in a community with reliable volunteer resources to help, that’s something to note, though today’s services may not be there tomorrow.

How old are you and your spouse and what’s your health history?  People in good health purchasing long-term care insurance at the age of 55 usually get the most affordable deal in LTC insurance. But an individual’s family health history and current health status are the real determinants of what your LTC insurance policy will cost – or if you’ll qualify for coverage at all.  Also, it’s important to note that 40 percent of long-term care is provided to individuals between the ages of 19 and 65, so the need for care can strike at any time. 

Are you a single female? Again, personal and family resources come into play here, but since women typically live longer than men – and they still earn less on average than men – women should take a heightened interest in providing for their long-term care safety net.  Long-term care insurance might be a good solution given their other investments and their health history.

What types of services are covered? Over the course of time, long-term care policies have evolved to place more emphasis on home-based care or assisted living, since most people would choose to recover or live out their last days in a familiar environment.  A basic LTC insurance policy pays for assistance with activities of daily living including eating, dressing, bathing, toileting, incontinence, and transferring (bed to chair, etc.).  Each policy lists the types of services that are covered under nursing home care and under home health care.  Homemaker services are generally covered and other services as listed in the policy. 

What triggers coverage? A qualified LTC policy won’t go into effect until the covered individual can’t perform two tasks of daily living for a period, typically 90 days, or when that person needs substantial supervision related to cognitive impairment.  This is where you have to read the fine print since some policies are more restrictive than others. More affordable policies generally take longer to kick in. See if coverage for other physical ailments is available as part of the policy and what per-diem or monthly allowances are offered.

What if I never want to go to a nursing home? The idea is to cover every eventuality. The best-designed LTC policies will pay the same amount of benefit whether care is received in a long-term care facility, an assisted living facility, an adult day care center, or in the home.  Some policies do offer reduced percentages for home health care versus nursing home care, but it’s a better idea to keep full percentages on home health care benefits since most people would rather stay in their homes.

What’s the record of particular companies in this business? Over the past generation, more companies have gotten involved in the LTC insurance business, and it makes sense to see not only who the leaders are at the time you’re buying and what they’re offering, but how financially healthy these companies are and have been over the course of time. You’ve probably heard of insurance companies that have gone out of business and stranded customers. There’s no restriction on that happening with LTC providers, so check their ratings and financial history very carefully.

 

2008 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community.

Copyright © 2008 MWBoone and Associates All Rights Reserved. MWBoone and Associates is a Registered Investment Advisor Investment Management services are not available through this web site but are described at www.mwboone.com. Securities offered through LPL Financial Member FINRA/SIPC.

Posted by MWBoone & Associates at 03:24 PM |

May 07, 2008

Economic Statistics failed to Satisfy the Gloom and Doomers

A wide array of statistics and policy actions were reported this week that failed to satisfy the gloom and doomers.  Economic statistics, while weak, are generally not falling off a cliff, and continue to support my view that we can avoid an economy wide recession.  It’s still too early to declare victory over the gloomy ones, but many parts of the economy are looking stable, and in fact, looking up.
 One big report covered first quarter GDP, showing a first quarter rise in real GDP of 0.6%, matching the fourth quarter increase.  Not a big increase, but also not the decline typically associated with recession. The employment report for April showed a small drop in payroll employment of 20,000, but it also showed a reversal of prior rises in the unemployment rate, falling to 5% from March’s 5.1%. Certainly not the kind of big gains associated with vibrant economic growth, but also not the nosedive I would associate with a slide into recession. 

We got another read on inflation.  The broadest measure of inflation, annualized change in the GDP price index, showed a rise of 2.6% in the first quarter with the “core” (excluding food and energy) GDP price index up 2.0%.  Both inflation measures are lower than in the fourth quarter.  Continued low inflation gives the Federal Reserve room to cut interest rates, and they did, dropping the fed funds rate to 2% on Wednesday.  They also announced further actions to shore up bank balance sheets today.

As I have said before, I still remain very concerned about the direction of oil prices and the dollar exchange rate.  Oil prices well about $100 per barrel continue to place a heavy burden on U.S. consumers.  They are responding by cutting back, with gasoline use, compared to last year, down the last three months.  But consumers are also slowing other purchases.  The dollar may be bottoming; it hit a record low in mid-March and, like the equity markets, subsequently moved higher.  Lower oil prices and continued dollar gains would, I think, be very beneficial to the economy and financial markets.

On the company earnings front, with 371 of the S&P 500 companies having reported, total earnings are down 14% compared with Q4 2007, but the decline is concentrated in the financial sector, where earnings fell 69%.  Eight of the remaining nine sectors show increases, ranging from a high of 23% in Technology to a low of 4% in Health Care. (The other earnings decline was in Consumer Discretionary.) Adding it up, the entire non-financial group was up about 10%.  Forward earnings expectations are for another overall decline in Q2 (more financial sector write-downs) and then gains in Q3 and Q4; the Q4 2008 earnings growth expectation is a rise of 53%.  That huge rise is mainly due to the very depressed earnings level in Q4 of 2007, but it does show how large the financial sector hit has been.

All in all, it has been a pretty good couple of months for equity markets, earnings and the economy.  While we are still down about 1.9% on the Dow and 4.0% on the S&P500 year to date, we are up a fair amount from the lows in mid-March.  We are near the end of the first quarter “earnings season” for S&P 500 companies and are again seeing a major divergence – excluding financials, company earnings look strong. I will continue to watch all of these indicators closely, but for now at least, I think things are looking up.  As always, please call me with any questions or concerns.

 

 ____________________________________________________________________________________
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.

 Copyright © 2008 MWBoone and Associates All Rights Reserved. MWBoone and Associates is a Registered Investment Advisor Investment Management services are not available through this web site but are described at www.mwboone.com. Securities offered through LPL Financial Member FINRA/SIPC.


Posted by MWBoone & Associates at 07:47 AM |

May 01, 2008

The Strategic Petroleum Reserve: Stop Filling It!

"On April 10th, Senator McCain stated that the Bush Administration should halt oil purchases for the Strategic Petroleum Reserve (SPR). He makes a very good point. Over the last eight months..."

To read the rest of  Lincoln Anderson's newest market update, please click on the link below:

http://www.mwboone.com/blog/LincolnAnderson_SPR.pdf

Posted by MWBoone & Associates at 11:49 AM |