2013 Consumer Electronics Show Highlights

January 26, 2013 — Sam H. Fawaz

For the 18th year in a row, I made my annual trek to the International Consumer Electronics Show (CES) in Las Vegas (January 8-11, 2013) along with about 150,000 of my closest friends, including some 10,000 members of the press. Looking for and hoping to capture a glimpse of the latest and greatest gadgets that might be adorning our living rooms, home offices and businesses, we crammed ourselves into crowded booths, aisles and press conferences.

As I’ve said in past articles on the show, attending every year is probably overkill due to the incremental improvements in the “wares” paraded by vendors and announced by large companies, with little in the way of life-changing technology. But as an electronics geek, it’s an addiction that I must feed every year. They say that the first step in addressing an addiction is to first admit you have a problem; so I guess I’m somewhat on my way to rehabilitation.

Regular attendees and readers know that the show is notable for the absence of perhaps one of today’s most influential consumer electronics and technology companies: Apple. The company has never exhibited at CES (and probably never will).  Surprisingly, for the first time in almost two decades, Microsoft, typically there with a huge presence at CES, was also absent, except for a meeting room tucked away in the corners of the show’s exhibit halls.  Gone also was the traditional opening keynote address by Bill Gates and, more recently, Steve Ballmer. I couldn’t help but think that this is another way that Microsoft is trying to imitate Apple–with a lack of presence.

Instead, the opening keynote was handled by Qualcomm’s CEO Dr. Paul Jacobs (with a “cameo” appearance by Steve Ballmer to tout Windows 8 and Windows mobile phones) amid a bizarre sequence of skits about the younger mobile generation.

The show’s recent emphasis continues to be on smart-phones, sharper and smarter flat screen TV’s and more tablet based PC’s and devices based on Google’s Android platform, though Google itself was a no-show as well.  The number of companies willing to make their living by accessorizing all those smart-phones and tablets seemed to make a new high this year.

I found a few noteworthy technologies at the show, though admittedly, I’m somewhat stretching “noteworthy” for some of the things that I’m choosing to write about.  While companies display their prototypes and future production models on the show floor, there’s no guarantee that they’ll make it into your mobile life, office or living room anytime in 2013, if ever. I’ll skip the also-ran tablets and smartphones and focus on the new and distinguishing features and enhancements over prior years.

TV’s Once Again Dominate the Show

As usual, CES 2013 was littered with the latest and greatest high-definition TV’s (HDTV) of varying sizes, features, thinness and smartness.

Organic light emitting diode screens (OLED) seem to be gaining some traction and may finally make their way into consumers’ living rooms. With a brighter and more colorful picture using a fraction of the energy consumption of traditional HDTV’s, OLED TV’s may finally be plentiful and affordable enough in 2013.

The race for the smartest TV’s with features such as voice recognition technology, were abundant as manufacturers seem to be in a race to beat Apple at its own game, their rumored iTV that seems to be in the works. Apple seems to be struggling in getting content providers to bend to their will, much as they did with music providers in their launch of the iTunes music store several years ago. Should the Apple iTV concept come to fruition, I expect that it will provide consumers with an unmatched user experience.

While the TV’s are getting smarter, thinner and even bendable, it’s not clear how much consumers are going to be willing to pay for these extra features. Manufacturers have seemingly resolved themselves to the fact that many watch TV while multi-tasking on their laptops or tablet PC’s.  So companies are starting to build in features that allow their TV’s to be wirelessly controlled, allow collaboration/interaction, and to help fetch content from the internet.

Interestingly, while most HDTV’s available today have the ability to connect to the internet, only about 15% of them are actually connected according to the NPD group, a market research company.

3D HDTV Part Deux

One feature seemingly de-emphasized this year at CES were the 3D-TV’s that so many companies have been touting for a few years now, probably owing to the poor adoption by consumers due literally to the headaches caused by the glasses required to be worn and the dearth of creative 3D available content that truly takes advantage of the medium.

Vizio, the well-known low-priced flat-screen manufacturer, debuted their line of no-glasses 3D TV’s at the show with prototypes that seemed to address the shortcomings of prior no-glasses 3D TV’s. Namely, you no longer have to sit in a certain position to be able to view the 3D picture; Vizio gives you 9 spots to sit where the image doesn’t go blurry or fuzzy. Both Toshiba and Sony have shown these types of TV’s in prior years, but they have yet to make it into production. While the Vizio TV suffers from a less sharp image than most high-definition TV’s and doesn’t have eye-popping 3D, it’s a considerable improvement over prior technologies.

I believe that 3D-TV remains a gimmick to get folks to upgrade and replace their existing HDTV’s. Even with the Vizio improvements, I say “save your money and invest it in a good HDTV available today.”

4K Ultra-High Definition TV

If you’re sitting on a spare $10,000-$20,000, you may be a candidate to buy one of the ultra-high definition TV’s that will begin hitting the stores in the spring. Described as 4K HDTV, the technology is intended to help scale high definition to larger sized TV’s and eliminate the visible resolution lines and enhance the sharpness as TV screens grow to 84-120 inches. All of the major TV manufacturers (Sony, Panasonic, LG, Samsung and others) were showing and expecting to release 4K HDTV’s in 2013.

4K refers to the four times resolution compared with the 1K of resolution in today’s HDTV’s (1080p). The pixels are packed 4X tighter to enhance the image. While producing a sharper image, I found the enhancement to be noticeable in a side by side comparison with a regular HDTV.  In regular viewing, I doubt that the viewer would notice much of a difference, certainly not enough to justify the huge premium these sets currently command.

Ultra HDTV will suffer from the same chicken or egg dilemma that 3D TV’s currently face: namely, a dearth of content. With Ultra HDTV, the content must be re-mastered or shot with a new generation of Ultra HD video cameras that capture that additional detail.  Until the prices come down, these will be TV’s for the very wealthy or to be used in commercial marketing or engineering applications where image quality is paramount and money is no object.

Mobile & Wireless Storage Solutions

Although perhaps not as exciting as new TV technologies, a few storage solutions to address shortcomings in existing portable ones, were introduced at CES

Seagate introduced their compact Wireless Plus mobile wireless storage expander/media streamer for mobile devices. Introduced a couple of years ago as the Seagate Satellite, it’s now a 1 TB battery operated storage device that also doubles as a portable Wi-Fi hotspot to share an internet connection with up to eight devices and stream media to all of them. Battery life is claimed to be up to 10 hours and works with iOS and Android devices as well as Samsung Smart TV’s.

LaCie introduced their 4TB “blade-runner” style portable storage solution that ups the ante for the amount of portable storage available. The USB 3.0 device will be produced in limited quantities and has a unique design.

If you have USB thumb drive size envy and you’re proud of the 128 GB currently available between your fingers, the latest Kingston USB 512 GB and 1 TB drives with fast USB 3.0 interfaces might leave you wanting.  Dubbed the DataTraveler HyperX Predator, it usurps the available capacity in solid state drives in most of today’s laptops and should be available in the first quarter of 2013.  With HD video and databases consuming ever-increasing space, you won’t have to wonder what you might do with 1 TB of portable storage (besides potentially losing it).  What you’ll have to wonder about, however, is whether you can afford the expected massively high price.

According to Kingston’s web site, the 512 GB version will set you back about $1,300, much more than a decently sized laptop computer with similar storage. But then again, with this much storage, you can load Windows 8 (Windows-To-Go), all of your applications and your data and boot up any other computer with this drive while leaving your own laptop at home.

To address speed issues with traditional portable backup drives (which use spinning disks), Buffalo Technology has added 1 GB of DDR3 memory to its latest external drive, the DriveStation DDR. With a USB 3.0 connection and at least 1 TB of disk capacity, it’s a fast way of adding low-cost, high-speed storage to a PC or a small server. Speeds are comparable with solid state drives, although there’s a caveat that you’ll need to complete all cached writes before shutting the drive down. This can take about seven seconds, so you may want to connect the drive to a universal power supply in order to protect essential data in the event of a power outage. Prices for the DriveStation DDR are US$119 for 1TB, $149 for 2TB, $189 for 3TB.

Windows 8 and Android based Hybrid Laptops/Tablets/Smart Displays

While Windows 8 and Android based tablets and laptops were abundant at CES 2013, Lenovo rolled out several new touch devices. The 27-inch Ideacentre Horizon Table PC was a popular item with its lie-flat, multi-user collaborative touch interface (ideal for gaming, business and education), though at 27 inches, it’s not exactly a mobile device.

Lenovo’s hybrid tablet/ultrabook ThinkPad Helix was another show stealer. Described by Lenovo as a “rip and flip” device, the Helix is an 11.6 inch tablet PC with a keyboard dock. It mixes pen and touch input, and has separate batteries in the screen and keyboard, giving it up to 10 hours of battery life according to Lenovo. It’s powered by a fast Intel Core i5 or i7 processor, and the lightweight pen is small and comfortable while the touchscreen means that you can mix and match pen and finger input in tablet mode.  Lenovo has designed the Helix to fit into the keyboard dock either conventionally or facing outwards, so you can use the dock as a stand while presenting or watching a video. It’s nice to see ThinkPad innovation continuing at Lenovo.

On the mobile front, Google’s Android operating system (OS) is now showing up on devices both larger and smaller than the standard smartphone and tablets that they were initially designed for. Android now seems to be the embedded OS of choice for a variety of devices. Not only do equipment manufacturers get an open OS with plenty of hardware support like they once got from Linux, but they also get thousands of apps ready to run. I’m beginning to appreciate how Android can massively leapfrog Apple’s iOS in terms of widespread adoption in mainstream and everyday devices.

Beyond the standard thin clients that can run a remote virtual desktop, a new “Smart Display” can also run full Android and web apps with touch enabled. This opens up the entire ecosystem of mobile applications in addition to virtual desktops.  Viewsonic is already shipping a 22” consumer version and it also had a 24″ prototype on display based on an Nvidia Tegra 3 dual-core mobile for business use.

Viewsonic also demonstrated a 65” touch-screen display with an embedded CPU running Android. I anticipate that large touchscreens will soon replace both whiteboards and video projectors used in corporate environments and board rooms. To preserve existing corporate investments in LCD’s, a company named Sengital DigiTouch demonstrated an installable touch panel to overlay on the LCD, effectively converting it into an Android tablet.

Dell/Wyse announced project Ophelia, a full Dual core Android system on a USB stick that fits in your pocket, plugs into any MHL-enabled (mobile high-definition link) display or TV and runs any Android app, web or remote windows app/desktop via Citrix XenDesktop. You can use Wi-Fi for connection and a Bluetooth keyboard and mouse, and work from anywhere.

In addition, there were numerous devices at the show with names like TV Stick and MiniPC that offered the capability to plug into any standard HDMI video port (you also need a USB cable and port to power them). These devices are currently targeted at turning any TV into a Smart or Google TV.

Conclusion

Of the many technologies shown at CES 2013, these are some that caught my eye and interest, and of which I thought they might interest readers.

Whenever I think of skipping the next CES and give it a couple of years to allow the new products to evolve further, I quickly come to my senses and quit at step one of my rehabilitation.  The next CES awaits me on January 7, 2014.  Yes, I do need help.

As usual I welcome your questions and feedback.

Posted in Technololgy. Tags: , , , , . 1 Comment »

Hey Windows 8, Where Do I Start?

September 30, 2012 — Sam H. Fawaz

For as long as I can remember, Microsoft’s releases of operating systems (OS) have been primarily designed around the personal computer environment.  Shortly after release, Microsoft then “shoe-horns” the OS into other devices such as smart phones, earlier versions of tablet PC’s and personal digital assistants.  As a result, users’ biggest complaints in the past have been slow or sluggish responsiveness, poor user interface design and incompatibility of the OS with small devices and screens.

Now with Windows 8 scheduled for an official release date of October 26 2012, about three years after the release of Windows 7, Microsoft (MS) has turned the “one size fits all” OS paradigm into the “lowest common denominator” paradigm.  That is to say, it’s almost as if MS has taken the interface, first introduced in the failed Zune music player, then refined for the Windows Smart Phone 7, and has scaled it up for the PC and modern tablet environment.

In this article, I’ll give you the highlights of my experience working with the new OS over the past couple of month and my thoughts on them.  In many respects, Windows 8 builds on Windows 7 with a few user interface changes, feature enhancements and under the hood upgrades.  In addition, I found that compatibility of hardware devices and software with Windows 7 carried over to Windows 8 with few exceptions.

Installation & Initial Impressions

The release to manufacture (RTM) version of Windows 8, a 3.5 GB DVD ISO image, downloaded to my Lenovo ThinkPad W500 notebook without any issues. After burning the image to an installation DVD, I was ready for the install.

The Windows 8 install routine follows the same script as Windows 7.  The installation wizard asked very few questions and proceeded to install Windows 7 without a hitch.  In fact, the only real choice to make during installation is whether to upgrade the existing operating system (assuming one exists) or to perform a fresh install.

In my case, the laptop I was using had two hard drives installed; one with Windows 7 running on it and another empty hard drive. In the majority of cases, I highly recommend backing up your computer and data, testing the backup, and then doing a fresh install (which reformats the hard drive and overwrites the old operating system).  This process, while more time consuming and labor intensive, ensures that your install goes more smoothly and your computer won’t be slowed down with old remnants and “trash” files, hidden malware, and a bloated registry from your previous Windows installation.  Obviously this means reinstalling all of your applications, finding your software keys, and re-registering the applications, so be ready for that.

For a fresh install, the entire process took about 20 minutes, even on my older hardware.  If the installation fails on your hardware, it’s more than likely a hardware or driver compatibility issue. Sometimes merely re-starting the install process after failure gets it to work.

After the installation and reboot were complete, and since I still had Windows 7 installed on the secondary drive, a Windows dual-boot menu came up allowing me to choose Windows 7 or Windows 8. If you do a fresh install over your existing operating system, you won’t have this choice. I chose Windows 8.

One of the new features of Windows 8 is a universal “network” login. While in the past each PC user had a local account to log onto each PC he or she owned, MS now understands that users have multiple devices (laptop, desktop, tablet, smart-phone) and would prefer not to have to create separate logins, internet favorites, desktop settings, etc. for each device.  This is akin to having a “network” or domain controller at the office monitoring and granting access to employee PC’s.  While this is optional, I highly recommend it since it also integrates your social networking accounts and Microsoft store access with the operating system.

By having users create a Microsoft “cloud” user account, using either a Hotmail or MSN e-mail address (or your own primary 3rd party e-mail address), Microsoft can store these settings in the cloud for use with any device you log into with that e-mail address.  That way, every device you log into will look, work and feel the same no matter where you are.  Of course, that means Microsoft can sell you apps and other devices in their digital “ecosystem”, not unlike Apple’s approach to locking you into their digital ecosystem.  It also means that you get 7 GB of online SkyDrive storage free for use to store and share documents and other files.  SkyDrive aware applications can conveniently take advantage of this storage (e.g., Office 2013)

Once you set up your user account, first-time setup asks you which WiFi network you want to connect to (assuming one is nearby) and what settings you want to use for Microsoft updates (i.e., automatic, ask, download then ask.)  New in Windows 8, you can choose your color scheme and background “tattoo” for your working environment (which of course can be changed anytime).  After a few seconds, the new Windows 8 “Metro” interface appears with a background picture of the infamous Seattle space needle. This is where the fun starts!

Before I continue describing my experience, I should mention that at one point shortly after installing Windows 8 (and a few applications), the system inexplicably crashed badly and couldn’t be recovered. Even the repair facility on the Windows 8 install disc was unable to recover the system. Worse, the Windows 7 partition would not boot up either, even though the data contained therein was intact. Only a full installation, this time without the Windows 7 drive in place (my choice), would get me up and running again.  Perhaps this was a hardware issue or an issue with this RTM version; I may never know. But suffice to say, in the future, I will not attempt another dual boot install of Windows 8 with another computer, lest it render both OS’s unusable (thankfully my data was still safe, but I still have to reinstall Windows 7 to get that partition running again).

User Unfriendly Interface?

Even though Windows 8 is not officially released, the new Metro interface (start screen) has already generated a considerable amount of controversy and, let’s just say, outright hatred.  Booting up to the start screen brings you to a tablet or smart-phone style interface with live “tiles” for pre-installed applications (apps) like maps, internet explorer, mail, games, store, music, camera, video, etc.  These apps update the desktop automatically (think gadgets) with information like the weather, incoming mail, social network updates, etc.  Double clicking one of the tiles launches the full-screen app.  Install an application of your own and a launch tile is created for you on the desktop.  But gone in Metro are the comfy and familiar task bar and Start button we’re all accustomed to.  In my opinion, the graphical interface is far inferior to that found in Apple’s OS and seemed a bit like child’s play.  The tiles themselves seemed to be low resolution and quite plain.

From here, things get a little nebulous.  Click on an app tile and it’s quite unclear what you need to do to close the app, launch another one, bring up the app menu, or simply get back to the start screen. I really hope that Microsoft ships the OS with a start-up tutorial for new Windows 8 users to demonstrate how to navigate the OS.  Without something like that, you’re just plain lost.  The first time I rebooted the computer, I had my desktop bitmap background displayed with no clue how to bring up the log in screen (hint: press any key!)

In Microsoft’s effort to create a single operating system intended for use with a keyboard and mouse as well as with finger swipes, they have created needless complexity and confusion for the user.  While I pride myself on digging deep under the hood in every operating system I unwrap, I felt somewhat lost and dumbfounded with my non-touch laptop screen when trying to navigate the OS.  Click up, right-click, click down, click right, click left, double-click, triple click; I tried everything to try and learn how to navigate the interface. Frustrated doesn’t begin to describe how I felt until I figured things out.

The fact is, without some help from the web, I wouldn’t have figured out how to navigate the interface.  By accident, I discovered that pressing the Windows key brought up the traditional Window 7 like task bar and interface (but still no Start button.) Pressing it again takes you back to the Metro interface.  Talk about feeling dumb.

To save you some time and frustration, here’s a little cheat sheet: The upper and lower edges of your screen are reserved for application menus and functionality.  The right and left edges of your screen are reserved for the operating system functionality. You move your mouse (or finger on a tablet) to the screen edges to bring up and use the selections that appear.

Moving your cursor to the upper left-hand corner brings up the thumbnails of all the running applications and a thumbnail of the start desktop.  Moving your cursor to the upper right-hand corner brings up the Windows 8 palate of buttons (called charms): search, share, start, devices and settings.  I won’t take the time to describe them since their name and clicking on each of them makes their functionality obvious.

Launch a traditional (non-Metro) application like MS-Word and you find yourself in the familiar desktop world, a la Windows 7. Launch a Windows 8 compatible application and you’re in the Metro world. At times, it felt like each of these two types of apps were on separate islands, if not like being on a dual boot system with two disparate operating systems. Figuring out how to get from one app to another took some guessing. Fortunately, the Alt-Tab and Windows-Tab key combinations still work. Nonetheless, it definitely takes some getting used to.

Though I didn’t have a touch-screen system to test it, Windows 8 is optimized for touch-screen PCs and tablets.  With the success of the iPhone and other tablet devices, having these capabilities built-in will make the user experience much more pleasant and interactive. Microsoft has made great strides in this area.

New Features and Enhancements

Like all previous iterations of Windows, Microsoft touts the security, performance and resource enhancements brought about by a new “architecture” in Windows 8.  Each version seems to always promise to use less memory, employ processors more efficiently, and need less disk space.  The disk space claims had better be true since solid-state drives (which I don’t have except on my iPad) are somewhat space constrained and quite expensive in the short term.  In addition, to be a truly mobile operating system, it would have to be truly memory and processor efficient. The new trusted boot is supposed to prevent malware from loading before the operating system, thereby making it more secure.

Windows 8 touts much faster start-up time. Is it faster than Windows 7? Yes it is. Is it much faster? No, not in my opinion, at least not on my laptop.

Windows 8 also claims to have longer battery life and faster graphics and text rendering. In my limited testing, I wasn’t able to validate these claims (especially since I don’t have a test work bench). I can however attest to the fact that I was able to connect and reconnect to Wi-Fi networks faster.

Windows 8 comes with the new Internet Explorer 10 as a Metro type application.  The menu and URL bar are moved to the bottom and Microsoft claims that it’s not only faster than previous versions, it has far better support for HTML5 standards.  Using IE 10 is like having a “clean full sheet” view, something that took some getting used to. But I found that I really liked how it looked and felt.  Nonetheless, the first application I installed on Windows 8 was Firefox (and of course my favorite app, RoboForm).

For some reason I’m unable to explain, I was not able to fully test the multi-monitor support touted in Windows 8.  Among Windows 8’s features for handling multiple monitors is the new ability to adjust and set the location of the task bar.  In my case, Windows 8 simply refused to recognize my 30” monitor (perhaps an incompatible driver). But if you’re using multiple monitors, setting the location of the task bar is a nice and long overdue enhancement.

As mentioned above, many apps ship pre-installed on Windows 8 with access to thousands more in the Microsoft app store.  If you’ve ever used a tablet PC or smart phone, you know exactly what I’m talking about.  One annoying aspect of apps are their minimalist approach to giving help and user options.  You often waste time hunting for a button, a menu, something to help you do what you need to do.  Sometimes too little of a good thing (options) is just as bad as too much of it.

My Experience, Comments & Editions

In day-to-day use, there was not much about Windows 8 that struck me as being radically different than Windows 7.  The speed and performance were similar as were the application and hardware compatibilities.  Most hardware manufacturers won’t have to rush out new compatible Windows 8 drivers, but some will.  Since the old Windows registry unfortunately lives on with Windows 8, backwards compatibility is assured, but so are the legacy issues, performance and problems inherent with it.

One important decision you’ll have to make is whether to trust your PC security (anti-virus, malware, firewall, spam, etc.) to Microsoft’s built-in capabilities and forgo a third party security suite or ante up for one. There’s no guarantee that your existing Windows 7 security suite will be compatible with Windows 8, so you may have to upgrade to a newer version. My decision is easy: let the security experts take care of my PC security, so I’ll spring for a third party compatible application.

As for my overall impression, Windows 8 strikes me as the next trouble spot for Microsoft a la Windows Vista.  The Metro interface will be discussed ad nausea and I suspect will continue to be bashed in the media.  In general, while I am happy with the Windows 8 upgrade, I don’t feel compelled, as I did with Windows 7, to rush out and upgrade my Windows 7 PC’s. However, if you’re ordering a new PC soon, then I highly recommend one with a touch screen. For that, Windows 8 is a must have.

As of this writing, Microsoft has announced four editions of Windows 8 with varying feature sets (e.g., Windows 8, Pro, Enterprise, and RT) with pricing from $14.99 (for Windows 7 computers purchased after June 1, 2012) to $39.99. For more details on the various editions, feature comparisons and upgrade paths, check out http://en.wikipedia.org/wiki/Windows_8_editions.

Windows 8 runs on any hardware that can run Windows 7. It will also be able to run any programs that run under Windows 7, unless you opt for a Windows RT tablet, which will only run new-style (Metro) Windows 8 apps.

After using Windows 8 for a period of time, it became readily apparent why Windows 8 upgrade pricing is so inexpensive: Microsoft expects users to make a lot of purchases from the Microsoft store. Towards that end, the store is somewhat “in your face” more often than you might like.

Like Windows 7, I once again expect a very slow and cautious corporate approach to upgrading to Windows 8, with many companies waiting until the first service pack is released before committing to deployment.  While the operating system is more secure, I don’t see many compelling corporate features to cause many companies to rush into upgrading.  Windows 7 is simply good enough.

Because of the learning curve involved, and because there is currently no option to disable the Metro interface, I suspect that many IT departments will shelve this upgrade until Microsoft is pressured enough to make the Metro interface optional and bring back the Start button and traditional Win 7 interface as the default. I’m not sure that’ll happen, but a slow corporate OS upgrade cycle might convince Microsoft to do so.

If you’ve been playing with the consumer preview or RTM versions of Windows 8, I would love to hear your feedback or questions.

Posted in General, Technololgy. Tags: , , . Leave a Comment »

Bond Market Outlook: Points to Ponder

June 6, 2012 — Sam H. Fawaz

During the past decade, many long-term fundamentals of investing have been turned upside down and one example is the performance of U.S. stocks compared with bonds. Over longer time periods, such as 20 or 30 years, stocks exhibited higher average annual returns along with greater volatility.1 Bonds, in contrast, presented lower long-term returns along with fewer ups and downs.

But the 10-year period ending December 31, 2011, has shown the opposite, with the average annual return of investment-grade bonds exceeding stocks by a margin of 5.8% compared with 2.9%.1 No one knows for sure whether the recent outperformance of bonds will continue, but events currently present in the U.S. economy are causing observers to question the outlook in the years ahead.

Interest Rates The Federal Reserve has maintained the federal funds rate between 0.0% and 0.25% with the goal of stimulating the economy. Given how low short-term interest rates are, it is likely that they will turn upward at some point, which would present challenges for bondholders. Historically, higher interest rates have caused the prices of existing bonds to fall as investors have pursued newly issued bonds paying higher rates. This scenario presents the potential for losses for existing bondholders.

Inflation During 2011, inflation averaged 3.2%, close to the historical average of 2.9%.2 But if inflation were to increase even higher, an investor would lose money on a bond with a yield lower than the rate of inflation. Some observers believe that if the U.S. economy begins generating stronger growth, inflation could once again spike upward.

Federal Spending Sizeable federal deficits are almost old news as the government looks for ways to stimulate the country’s economic engines. While economic growth is a laudable objective, outsized federal spending may impact the financial markets. If the federal government is forced to pay higher interest rates to entice investors to fund the debt, this action could lead to higher interest rates on other types of bonds as well in response to investor demand.

Bonds can help investors balance a portfolio weighted to stock funds or other assets. When making decisions about investments, it is important to weigh both the benefits and the risks associated with bonds and any other assets that you own.

Source/Disclaimer:

1Sources: Standard & Poor’s; Barclays Capital. Stocks are represented by the Standard & Poor’s 500 Index, bonds by the Barclays Aggregate Bond Index, volatility by standard deviation. Results are for the 30-year period ending December 31, 2011. You cannot invest directly in an index. Past performance does not guarantee future results. Investing in stocks involves risks, including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price.

2Source: U.S. Bureau of Labor Statistics. Inflation is represented by the Consumer Price Index. Historical average is for the period between 1926 and 2011.

June 2012 — This column is provided through the Financial Planning Association, the membership organization for the financial planning community, and is brought to you by YDream Financial Services,a local member of FPA.

Posted in General, investing, markets, retirement. Tags: , , . Leave a Comment »

Hooked on the iPad

December 17, 2011 — Sam H. Fawaz

Most people who know me quickly realize that my tolerance for electronic gadgets that don’t work properly or don’t justify their hefty cost is pretty low. I still use a Palm 680 Smartphone and hold onto my computers much longer than their useful life. Shiny and new aren’t on my top requirement list as much as utility, durability and value are.

Store return policies appear at the top of my list when considering a vendor for a new electronic gadget, and restocking fees are definitely my enemy. So when I purchased my first tablet PC to try out, based on all the positive feedback and reviews, the generous return policy at Target (90 days) was just the ticket to figure out whether a tablet would fit into my computing life. As it turned out, I didn’t need the return policy and the Apple iPad 2 goes with me nearly everywhere I go.

While tons of ink has been spilled about the tablet space and the iPad, I wanted to share my thoughts and experience of living with an iPad for over four months. Despite owning two desktop computers, two laptops and a smartphone, I find myself going back to the iPad time and time again whenever I need a totally portable and light device on-the-go.

Several models of the iPad are available. They differ by color (black or white-I chose white), memory size (16 GB, 32 GB or 64 GB) and wireless capability (Wi-Fi or cellular). For my own purposes, I chose the 64 GB version to ensure that I never run out of storage space, given that the iPad has no on-board expansion capabilities. While many might question the need for this much memory, I know that it can be quickly filled up with documents, e-books, music and video. I took the approach that you can never have too much space; just like with computer hard drives, you always manage to fill them up at some point, especially with so many apps available these days.

Some may argue that with the Apple iCloud (and other online storage services), the online storage and backup facility recently launched, more than a nominal amount of local storage is no longer necessary. My response is that, while Wi-Fi and cellular data reception may be ubiquitous, it’s when you really need that video or document that you find yourself with an online connection that’s unavailable, too slow or unreliable. Internet access hasn’t, in my opinion, reached the reliability or overall availability as much as say, electricity.

This brings me to my next choice: Wi-Fi or cellular internet access. I’ll say up front, I’m too budget-minded when it comes to paying for even more internet access (via cellular) when I’m already paying for it twice: once on my smart phone and once at home (after all I am a financial planner). I just couldn’t see spending another $30 or more monthly for an additional plan that I would use only where Wi-Fi is not available. Also, if I were to “spring” for another wireless connection, I’d go for one of the portable cellular Wi-Fi routing devices that can make internet access available for more than one device (à la the Verizon MiFi). This way I’m not limiting my cellular internet access to one device; I could also use it with my laptops.

In my experience, cellular access on my iPad would have been handy at times where Wi-Fi was not available for my iPad, but those instances have been only a few. Also, keep in mind that, even when only Wi-Fi is available, it may not be free (airports, airplanes, etc.) And obviously a cellular data modem can’t be used on an airplane.

For someone who has used an iPhone or iPod Touch, getting used to the multi-touch screen and iOS interface is second nature. For someone like me, who never owned either, learning the navigation of the interface and various finger gestures was very simple and intuitive. Within minutes I became comfortable opening and navigating applications, though it took some getting used to. Being so PC and Windows centric, this was also my first experience with an Apple computing device (other than an iPod of course).

Since I’m well versed in using iTunes software, the synchronization interface for the iPad with your computer, getting started setting up the iPad was relatively easy. While I was anxious to sync, view and listen to my music and videos on the iPad, I really viewed the primary purpose of the iPad as an e-reader and lightweight e-mail and internet browsing device. Everyone knows about the hundreds of thousands of “apps” available for the iPad, and I was curious which ones I would gravitate towards or incorporate into my daily life.

An online Apple account is essential if you plan to use iCloud, download apps or buy anything from the iTunes store. Anyone who has purchased music or media from Apple already has an account. If not, setting one up is easy and free; even if you never purchase a thing from Apple, and are only interested in the free apps, you’ll need an online Apple account.

During set-up, the iPad asks if you wish to establish a 4 digit passcode to protect your iPad and contents. I can unequivocally say that you must do this immediately and set a short time-out for it. It will help protect your device and data from unauthorized access and spying eyes, and will not allow use until after you input the passcode. You can even set the maximum number of failed attempts to unlock the iPad, after which it will erase all the data from the device as a safety precaution.

One of the first apps that came “standard” on the iPad was “Find iPhone”. This allows you to remotely track down your device via GPS should it become lost or stolen. I set this up right away just in case this happened. Although a clever thief can likely find a way around it, it’s a second line of defense (after the passcode) to retrieve or wipe your data should the iPad fall into the wrong hands. And as I get a bit older, it may even help me find my device around the house in case I misplace it like my keys.

Without any USB ports or memory card slots, one wonders how you get data back and forth to the device. As alluded to above, the iCloud can act as a data hub to shuttle files and documents to the iPad. In addition, e-mail and internet attachments (most commonly PDF’s) are opened and displayed without any extra effort, using the preinstalled iBook application.

Speaking of e-mail, setting up an internet e-mail account (in my case Google’s Gmail) was straightforward and effortless. The iPad uses the IMAP protocol to sync messages with the server and makes e-mail processing a breeze. Tapping out short e-mails with the on-screen keyboard became easier over time, though I splurged on a $99 Logitech Bluetooth keyboard/cover combo device. The keyboard doubles as a hard screen cover when not in use. The keyboard, while a bit small, is much easier to type on than the virtual screen keyboard and makes short work of typing longer documents or e-mails. The keyboard/cover also doubles as an iPad stand turning the iPad into a mini convertible notebook.

Internet browsing using the Safari browser worked flawlessly, though Internet Explorer or Firefox users may take some time to get used to Safari. Of course, as many iPad users learn quickly, Apple does not run the ubiquitous Adobe Flash applications or videos. Over time, this has become less of an issue as more and more video content is being converted to HTML 5.0. While the majority of web videos are in Flash, a large portion of YouTube and other web video content is available in HTML 5.0.

So once I had mastered the e-mail, internet, e-reader and video playback capabilities, it was time to explore the available apps that would make me more productive on my iPad. Regular readers of my columns know that the most useful app on my computer is RoboForm, my form filling and password management software of choice. RoboForm is available for the iPad, though the form filling capabilities are all but muted in this early version. It really acts as a lookup repository for web sites, ID’s and passwords, which is what I really need when on I’m on the road. RoboForm syncs online with RoboForm To Go for those signed up ($19 annually), so your ID’s and passwords are always up-to-date.

I also like the idea of being able to remote control my PC’s with my iPad, so I bought and downloaded the LogMeIn Ignition iPad app to be able to remote control my PC’s ($30). While the iPad screen is a bit small to display my 30-inch screen at home, the app performed flawlessly to remote control and access my home PC. It takes a little getting used to, that is, using the finger gestures to navigate, but this works fairly well. There are no extra fees for this access beyond the fees you may pay for the LogMeIn services (they have free and paid plans).

Reading books, newspapers and magazines on the iPad is a pleasure and a great convenience. I converted my Wall Street Journal, Barron’s, Business Week and Investor’s Business Daily paper subscriptions to electronic ones and I’ll never go back to ink stained fingers. I’ve also had an electronic PC Magazine subscription ever since they ceased their print edition, so I now get that “pushed” to my iPad on the day of release. Any further renewals of magazine subscriptions will be electronic to help reduce magazine clutter creep at home. I know my wife appreciates it and can’t wait for this to happen.

The calendar, contacts, notes and reminders (to-do) can all sync with Outlook or Google Apps. While I still use Commence RM as my favorite personal information manager, I can sync Commence with Outlook or Google Apps and therefore my personal information is available to me on my iPad. And with the iCloud, once I move to a “current decade” smartphone like the iPhone, I’ll find that information there as well. Using the Mint app, I can keep track of my spending, credit card bills and budgets. I also downloaded the Microsoft OneNote app to sync with my online and desktop OneNote databases, a very handy and quite useful app.

I used iCloud to back up the iPad and it worked on the first try without a hitch. Though the allotted free space is limited to 5 GB, you can buy additional space for a fee. All of your Apple purchased content and media is stored for free and doesn’t count against your paid and free space. Be aware that, for a limited time, box.net offers 50 GB of free space to anyone who downloads their free iPad cloud storage app.

Battery life of the iPad is about 8-12 hours, so you can work with it all day long without carrying a charger. My only disappointment with charging the iPad is that my laptops’ and desktops’ USB ports were not powerful enough to charge this iPad. This seems like a device flaw or “bug” to me. Even an iPod charger was not powerful enough, which was a curiosity.

I spent several days (not consecutive) trying to use the iPad as my primary and only computing device, but never made it through the day. That’s because, even with the accessory keyboard, I found it cramped and a bit tiring to work on for hours at a time. For conference note taking, the iPad was quite handy and lightweight to carry around all day long. Given that iOS is an Apple operating system, many PC based apps (such as Commence RM and Microsoft Office applications) won’t work on the iPad. Obviously, running a robust database application or tax compliance software is currently out of the question, until someone “ports” their apps to the iPad. So I won’t be selling my laptops anytime soon.

I found surprisingly very little to complain about when it came to the iPad. Obviously the price of the iPad, just like other Apple products, is at a premium to other tablets, but I believe that this will change very soon as competition heats up. When it came to some Adobe Flash based web sites, obviously it was disappointing not to be able to call them up on the iPad.

When some applications continuously crashed for apparently no reason, I had to uninstall then reinstall them to fix the problem. Unlike a Microsoft Windows application which displays a cryptic error message when it crashes, when an iOS application crashes, it merely closes without prior notice or message. But the recovery is quite elegant and rarely caused a reboot of the iPad.

Without a cover or protective film, the iPad can easily slip out of one’s hand and fall to the ground. I used and recommend a Zagg brand clear film cover on the front and back to protect the screen and improve the grip.

With Android based tablets hitting the market in droves in the next year, the next act for the iPad will be to stay one step ahead. Apple’s share of the tablet market has already taken a hit, and unless Apple enhances the next iPad with new features not found on the other less expensive tablets, the iPad will become one of many others competing for consumers’ attention and dollars. The design, simplicity and elegance of the iPad set it apart; only time will tell whether buyers will continue to pay a premium for it. For me, the bar is set high, so competitors will need to really show their mettle to get me to switch. I’m hooked. I’d be delighted to hear your feedback and useful applications that you can’t live without.

Posted in General. Leave a Comment »

What’s Going on With The Markets? 3rd Quarter 2011

October 1, 2011 — Sam H. Fawaz

The headline on today’s Wall Street Journal says it all: “Stocks Log Worst Quarter Since ’09”, referring of course to the first quarter of 2009 before the start of the (current?) bull market run. Even quarter-end “window dressing”, where fund managers buy up the best performing stocks to make their holdings look good to shareholders and boost their chances of quarterly performance bonuses didn’t help at all. September 30th ended the day, week, month and quarter-end at an ominous level.
 
The shocks to the markets continue to come from the Eurozone debt crisis, worries of another recession starting, the Chinese economy slowing, and now, corporate earnings results for the third quarter coming in below estimates. Forward guidance, that is, how companies estimate their upcoming earnings, are expected to be pulled down a bit. With economic data continuing to soften or come in worse than expected, evidence is mounting that the economy continues to slow down, but not contract. Contraction for two straight quarters is the textbook definition of the start of a recession.
 
My most reliable source for forecasting a recession comes from the Economic Cycle Research Institute (ECRI). In the past, they have been spot on in identifying the conditions that precede the onset of a recession.  This week, although not confirming the start of a recession, the ECRI did confirm that evidence of a recession is spreading like wildfire and one would be almost impossible to avoid given current conditions.  Consumer confidence is at or near an all-time low due partly because of the whole debt ceiling debacle and political gridlock. Without confidence, and without jobs, people are not spending to help the recovery. Without spending, there’s no demand. Without demand, there’s no production and therefore no hiring. And you can complete that circle yourself.
 
As I’ve mentioned before, if we are headed for a recession, then stock prices will likely have to fall further before they are fairly priced. This is because earnings fall during a recession, and institutions only buy stocks when they’re fairly priced according to forward earnings. If we’re not headed for a recession, then stock prices are cheap and out to be bought hand over fist right here, right now. 
 
What we’ve witnessed in the stock markets over the past 8-9 weeks is extreme volatility brought on by the battle between those in the recession camp and those not in the recession camp (along with Eurozone worries).  Since the August 9th low in the markets, the S&P 500 has traded in a 100 point range and has basically gone nowhere.  This bouncing around will not continue forever (but can continue for months), and will give way to a big move up or down in the near future. The action during the past week tends to point to a downward move, but every downward move in this range looked like it was going to break down until buyers stepped in.
 
What I Believe and What We’re DoingAs evidence that points to a recession mounts, I’m becoming less convinced that we can avoid a recession in the next 3-6 months. This is a change from my previous stance of no impending recession in previous months. It’s become increasingly clear that the Federal Reserve is less able to influence what happens in the economy, and in my opinion, the less they do the better.
 
As the odds of a recession have been increasing, and world economies also slow, I have been slowly reducing client exposure to equities over the past couple of months. Our exposure to small cap stocks is now very small, and I began to reduce exposure to mid-cap stocks by up to 1/3 as of last week.
 
On Friday of this week, I increased our exposure to hedges via leveraged inverse exchange traded funds because I believe that we will test the August 9th low on the S&P 500 index of 1101 (current level of support) and may even break below it. I also believe that even if the market did decline by another 10% (should we break support) we still have a year-end rally in the cards.  Even if I’m wrong about reducing equity exposure and increasing our hedges, and the markets reverse and fly to the upside (not likely), prudent risk management based on the facts and circumstances warrant caution. It never hurts to reduce equity exposure when uncertainty and volatility rule the markets.
 
September 2011 was the 6th down month in a row in the stock markets, and bear markets typically last 6-18 months. If this is merely a correction and not a bear market, then 6 months is a good point in time to expect a bounce. My expectations, especially since this is the 3rd year of an election cycle, that somewhere along the lines of mid to late October, we begin to see the year-end bounce. 
 
As always, I offer my caveat: my crystal ball is in the shop and no one, including me, can forecast what the markets will do. I can only provide my best guess, and that’s what this is, a guess, based on all the information available to me and historical precedent, of what the markets may do. I could be totally wrong on both direction and timing, so no one should make any investment decisions based on my prognostications or forecast. Forewarned is forearmed.
 
I’m happy to answer any questions or comments you may have. If you already have a fee-only financial advisor (the only kind I recommend), then great. If you’re looking for an unbiased, fee-only financial advisor, don’t hesitate to contact us. Your first consultation is complimentary and comes with no pressure to act or sales tactics.  As fee-only fiduciary advisors, we act in your best interest and collect no commissions, trails or any hidden compensation.

Posted in investing, markets, retirement. Tags: , , . Leave a Comment »

Stock Market and Economic Update August 21, 2011

August 21, 2011 — Sam H. Fawaz

The past week hasn’t been particularly kind in the stock markets as we saw little follow-through on the previous week’s rally. My upside target of 1230-1260 in the S&P 500 index was not even approached before selling resumed at around 1208.
 
A few economic reports from last week have me a bit more concerned about the possibility of a recession within the next twelve months.  Although the economic leading indicators that I’ve come to rely on from the Economic Cycle Research Institute turned up again this past week, the only components to rise were financial ones, namely the money supply (with the stock market selling being a contributing factor) and the steep yield curve (ultralow interest rates on short duration debt versus higher rates on longer duration debt made possible by the Federal Reserve’s low interest rate policy). Without these two components, the index would have been down 0.5%, which is down three of the last four months.  Weekly unemployment claims came in at 408,000 whereas they were starting to trend below 400,000 in the last few weeks.
 
So the volatility in the market right now is at least partially attributable to concerns about whether a recession is on the horizon or not. If one is not, then the market is undervalued. If one is, then the market is overvalued. So far, the weight of evidence of a recession is still inconclusive, but it appears that institutional buyers are starting to “discount” that possibility as they demonstrate through selling in the markets.  The research I read is split about 50/50 about whether a recession is coming, with convincing cases made on both sides.  My feeling is that we have a bit further to go on the downside if economic factors or confidence measures don’t start pointing up real soon.
 
Accordingly, I am becoming increasingly concerned about the behavior of the markets and the economic numbers coming out lately since they haven’t been particularly encouraging. Accordingly, this past week I increased my clients’ hedges and continued to slightly reduce exposure to equities just to be on the safe side. 
 
This week will be critical since the Federal Reserve Chairman (Ben Bernanke) will be speaking on Friday and will reveal any further measures they may take to ease recession concerns and restore confidence to the markets.  More information about how the Eurozone will handle its debt crisis should help calm the markets.  But based on the market action on Thursday and Friday, it seems that many institutional and retail investors are not waiting to hear what the Chairman has to say or what solution the Eurozone might propose to avoid a deepening debt crisis.  They have therefore been selling and may continue doing so into this week.
 
I will continue to monitor the markets day to day and make further adjustments to portfolios and increase hedges as conditions warrant. Since the market is heavily oversold, we should expect some level of a bounce this week, if only for folks to prepare for any surprise announcement the Federal Reserve Chairman might offer to help propel markets higher.

Bottom line, it’s too early to reach conclusions about whether or not the April high was an important top in the market. If it was, it was unlike any market top of the past 50 years, with both the LEI and market breadth still hitting new highs after the top. When panic selling spreads across the board – good quality companies go down along with the overvalued speculative stocks.  I can say that barring some type of financial Armageddon, I believe the downside valuation risk in this market is far less than in 2007-08. 

My major equity allocation decision is to give this market more time before making any major adjustments. What is needed –more than anything else– is stability and confidence. Only time and stability can calm the emotional extremes and fears, which still come out of the woodwork on a daily basis. But as I’ve said, if the retest (of the S&P 500 index lows of 1100) is able to hold above the lows of last week, then it could provide a strong market base if evidence of a recession does not increase in coming weeks.

Again, please do not take this message as advice to buy or sell any securities; please consult with your investment advisor (or us!) This message is not intended to forecast what will happen in the market since no one (including me) can do that. My objective is to share what I’ve been hearing, reading and researching, the end result of which is one of cautious optimism.
 
Please don’t hesitate to contact me if you need any help with your personal financial situation or investments.  I welcome your feedback and questions always.

Posted in investing, markets, retirement. Tags: , , , , . Leave a Comment »

Why I Don’t Trust This Rally

August 15, 2011 — Sam H. Fawaz

We finally strung together three up days in a row in the stock markets today and that’s a good thing. Volatility is ratcheting down and folks are stepping in to scoop up bargains.  Unfortunately, for the first time since we bottomed back in March 2009, I don’t trust this rally and believe that we are headed back to test last week’s low of 1,101 on the S&P 500 index in the short term.  If the market doesn’t hold at that level, our next stop is likely 1060. Let me explain why this rally has a lot to prove before I believe that this correction is over:
 
1.  Other than relieving an oversold condition, not much has changed fundamentally between last week and today. Uncertainties are abound about the possibility of a recession starting or already started (which I don’t believe), how we’re going to deal with raging federal deficits, and the Eurozone debt crisis. A meeting between German and French officials tomorrow will shed some light on how they will deal with the debt crisis in Europe.
2.  The three day rally that began last Thursday has occurred on light volume, reflecting very little institutional participation.  Institutions often wait for retail investors to bid up the market after a severe selloff to set it up for more selling.  The selling has been coming in on very heavy volume while buying is coming in on light volume, a bearish sign.
3.  Consumer confidence, as measured by the University of Michigan survey released last Friday, was at a record low.  These levels have not been seen since the great recession (but do reflect the recent anxiety over the recent U.S. debt ceiling debacle and stock market sell-off last week).
4.  The main stock market sentiment indicators showed an increase in bullish sentiment last week. This is considered a “contra” indicator. After the recent stock market beating, there seems to be more complacency than fear in the markets. Folks are still in “buy the dip” mode. They might have buyer’s remorse if they’re short-term holders.
5.  The kind of technical damage to the markets caused by last week’s sell-off takes weeks, if not months, to repair.  After-shocks and re-tests of lows are the norm after such a severe sell-off.
The positives that point to a better economic environment and stock market include a better than expected weekly jobs report last week, improved July retail sales figures, good corporate insider buying, and more big corporate mergers announced today.
 
While I believe that the markets could bounce for a few more days, unfortunately, I feel that we are headed lower over the short-term. The S&P 500 index closed at 1204 today, and we may even climb as high as 1240-1260 before the markets “roll over”.  That is 3-4% from here, and it’s only an educated guess on my part since 1250 is approximately where the markets fell apart.  I’d like to take advantage of this short-term rise, but only if more volume confirms the move higher.  Otherwise, it’s easy to get whip-sawed in this low volume environment. 
 
This is why I continue to hold onto hedges and have refrained from putting available cash to work at this point.  I’ve continued to selectively cull positions and rebalance accounts to take advantage of the recent strength in the market. Nonetheless, we remain heavily weighted long in the equity and bond markets despite our cash and hedges.  If the S&P 500 index closes above 1290 convincingly, then I’ll re-evaluate my stance, consider pulling in my hedges and invest more cash.
 
But aren’t we investing for the long term? Why should short-term market dynamics control our investing decisions? While we do invest for the long term, it’s prudent to protect capital when the market is in a well-defined downtrend, especially when a near-term recession is a possibility, albeit a remote one.  Markets around the world are factoring in a global slowdown, and the U.S. won’t be immune.  Sure central banks may pull a rabbit out of their hat and stimulate the economy and markets once again, and I’ll be ready for that.  But for right now, unless I see some institutional “power” behind this rally, I just don’t trust it.  As I’ve mentioned before, I expect near-term market weakness until sometime in October.
 
No part of this message should be considered a recommendation to buy or sell any securities, and you should not act on this without consultation with your financial planner or money manager (better yet, talk to us!)  My position will change if the facts change, so I am not married to this position. That could be tomorrow, next week or next month. I don’t have a crystal ball, so my prognostication should not be taken as true fact (I could change my mind or worse, be wrong!)
 
Please let me know if you have any questions, concerns or feedback. I’d love to hear what you’re thinking.

Posted in investing, markets, retirement. Tags: , , , , . Leave a Comment »

What’s Going on in the Markets-August 4, 2011

August 4, 2011 — Sam H. Fawaz

I probably don’t have to re-hash for you what’s been happening in the markets over the past couple of weeks as we’ve suffered what feels like the worst decline in the markets since they recovered in March 2009. The media does a pretty good job of instilling fear and I don’t expect the newspaper headlines to be happy ones on Friday morning. So let me give you my take on what’s going on and what I’m expecting.

Coming into this week amid the uncertainty over the passage of the debt ceiling vote in Congress, we had already endured about seven days of selling in the markets that seemed to pick up steam on Monday. The euphoria on Sunday evening over a possible debt deal in Congress was over within minutes of Monday’s market open and the selling began in earnest. So what gives? If a deal was such a good thing, why did the markets sell off on the news and passage of the increase in the debt ceiling?

In reality, the significance of the debt ceiling vote was elevated by the media, and while it added to market anxiety, many were actually more concerned about the signs of slowing in the economy. The usual concerns over jobs, housing, spending and overall goverment regulation of business have been weighing on consumer and business confidence for a few months now. Downward revisions in the gross domestic product for past and future quarters haven’t help encourage companies to hire or spend on capital improvements. Once the focus was taken off the debt ceiling issue, the economic concerns were brought to the forefront.

Another Recession Already?
You’ll hear talk in the media about whether we’re heading for another recession this year, whether we’re already in a new recession or whether the recession never ended. As for the last two assertions, the economic statistics simply don’t support the notion that we’re in a recession. As for whether we’re heading for another recession in 2011, so far, the economic statistics don’t support that either (though some unfortunate members of the unemployed or those under water on their mortgages may not agree.) While we’re seeing a slowing of economic output, hiring and capital spending, we have not seen any evidence of negative or no growth. Could we see one in 2012? Anything’s possible, but no one can predict this; not even me.

My take on all this is that while the recovery has been anemic, I don’t believe that we’re heading for a recession this year. While I’m no economist, the Japan earthquake, Eurorpean and U.S. debt “crises” and other weather related factors have really thrown 2011 for an economic loop. When you consider that fiscal stimulus takes 18-24 months to make it out of the capital markets into capital spending, we may just be experiencing a temporary slowdown in growth.

As an example, commercial traders of lumber futures deny a slowdown in demand, and that usually doesn’t happen if a recession is around the corner. Corporate profits are at record highs (thanks to a dearth of hiring) and many are raising estimates of earnings for the next quarter. Credit is cheap and readily available, and companies are buying other companies and their own stock back at record levels. With the Federal Reserve on the side of the consumer, you’d be hard pressed to bed against them. So I believe that reports of an impending recession may be a bit exaggerated.

So What Happened Today?
To be honest, I came into my office today fully expecting an “up” day in the markets since we finally “bounced” yesterday. All technical indicators pointed to a severely “oversold” market (a market where selling is exhausted in the short term) that we were ready to bounce higher. In fact, I had prepared and positioned for it.

But overnight, Japan intervened in the capital markets to stem the seemingly unstoppable rise in the value of the Yen (which adversely affects their exports) right after Switzerland lowered their short-term interest rates to near zero yesterday (just like the United States). In addition, brewing concerns over Italian and other European debt problems were not helped by ambiguous comments made by the head of the European Central Bank on how they are dealing with their crisis. Suffice to say, with a 400,000 print in the weekly unemployment figures reported today, we were down from the start and never looked back.

As so often happens on a day when everyone starts to sell, the selling feeds upon itself and others join in. While we didn’t see any moments of panic, the selling was steady and relentless all day. What started out with gold and silver making highs in the morning ended the day with both at their lows.

Why? I believe it was because of forced selling and margin calls. When margin account balances need to be replenished, the most liquid of assets (like gold, silver and even Apple Stock) get sold off to cover the margin. So while there is nothing fundamentally wrong with many stocks and funds, they get sold along with everything else to raise cash for margin calls and for mutual fund shareholder requests for liquidations.

So Now What?
Despite the intense selling over the past couple of weeks, the S&P 500 is only 10% from the highs this year, just right in correction territory. You may recall that the markets corrected 16% last summer, and that’s never fun. Many then were predicting a double-dip recession around the corner and a return to a bear market. Neither of those happened; instead we moved up 30% to new highs in May. While past performance is no guaranteee of future results, I still don’t see any impending techincal signs that we are entering into a new bear market phase right now. If I did, I would be taking appropriate action. However, though this could change on any particular day, I believe this bull market still deserves the benefit of the doubt.

At the moment, as alluded to above, the market is extremely oversold and should bounce over the next few days. After that, it’s anyone’s guess what might happen, but I suspect that the remainder of the summer and into early fall will remain choppy, volatile and “lean” with a negative bias. While I expect more short-term downside, I don’t think panic selling is the right response now. While you may choose to cull some profitable positions, it may already be too late to sell most. As always, you should check with your financial advisor (or us) about the right course of action for your portfolio. Remember, no one can guess how high or low a market can go.

To be certain, I was not expecting the kind of response that we got from the market this week. But I could not foresee the actions and responses from central banks around the world either.

For our client portfolios, I’ve been keeping a good portion of investable funds in cash and had liquidated some positions ahead of this decline. Of course, I wish I had liquidated more, but alas, my crystal ball is still in the shop.

I’ve been wanting to put on some hedges via inverse ETF’s for some time now. But those funds are “too hot to handle” right now and with an oversold bounce overdue, they would only compound losses in the short term. Other hedges are also way too expensive right now as volatility is at 52 week highs. I usually like to wait for a bounce in the markets before putting on hedges, but the only bounce we got yesterday was a bit tepid and shorter than expected. I will look to put them on as soon as market conditions allow. If the selling continues in the short term as I expect, then I’ll look to lighten up other positions as appropriate as well.

On Friday, we’ll get the monthly jobs report for July, which is widely expected to be lousy and show a continued unemployment rate of 9.2%. Any selling that transpires in the morning will more likely result from margin call covering rather than a reaction the jobs number (or if we get more bad news overnight from Europe).

Please be sure to contact me if you have any questions or concerns about the markets. I’ll be happy to help, but please don’t take action based on the contents of this message. It’s not my intent to render actionable financial advice to anyone pursuant to investment advisor restrictions and regulations.

Posted in General, investing, markets. Tags: , , , . Leave a Comment »

What’s Going on in the Markets – Tuesday June 21 2011

June 22, 2011 — Sam H. Fawaz

As communicated in my post last week, the stock markets were overdue for a rally.  And as expected, we rallied for the fourth day in a row today.  What distinguishes today’s rally from the previous three days is that the market has now switched from a downtrend to a new confirmed uptrend.  The real tell was the amount of volume traded on the stock exchanges and it was much higher today than the previous three rally days.  Thus, today we got what is known as a “follow-through day” in the markets. 

Expectations of a Greek bailout, an upcoming great 2nd quarter corporate earnings season (beginning in July) along with lower oil prices have helped improve investor and institutional optimism.  Institutions are also facing quarter-end, so they help buy up the market in the last couple of weeks to make their results look better.  As you know, we closed out our hedges (profitably) in the middle of last week in anticipation of this rally.

With any follow-through day, there are risks that the rally fails and the downtrend reasserts itself.  This is why a follow-through day comes on the fourth day of a rally attempt and no earlier.  Unfortunately, it sometimes takes two or more failed attempts before the rally succeeds. In fact, a failed follow-through day occurred most recently on May 31 when institutions sold into the rally the day after the uptrend was confirmed.  So while all signals point to a rally in the short term (my guess is that it lasts perhaps 1-3 weeks), we have to be cognizant that markets are on edge these days as we digest the news of a global economic slowdown, the prospect of more European debt woes and the prospect of a delayed extension of the national debt ceiling in Congress. 
A new rally is most vulnerable in its first few days and, once those have passed, the chances of succeeding increase dramatically.  In any case, volatility and low volume, as I’ve mentioned before, are characteristics of summertime stock markets.  So markets are more easily pushed around in this environment.

What this means for client portfolios is that new investments of cash are safer during a confirmed uptrend, which is what I started doing today.  But in the current environment, just like with hedges, new investments could turn into short-term trades if the market decides not to cooperate.  So even though we are investing for the long term with the majority of the portfolios, a small percentage of each portfolio is invested on a short-term (or very short-term) basis to take advantage of market swings and volatility.  This could be hours, days or weeks depending on how the markets behave.  In my opinion, proper diversification of portfolios includes both long-term investments and short-term ones as well.

I hope this helps you understand a little better how I’m approaching this market and trying to help manage portfolios.  As usual, please don’t rely on my prognostications as a basis for any investment or trading decisions; consult with your advisor or us if you have any questions about how to invest in these markets.  My crystal ball remains in the shop, so I’m no better at predicting the future than the next fortune teller.  What I do best is act as your risk manager and thereby mitigate the risk of bad things happening to portfolios while enhancing portfolio returns.

I welcome your questions and appreciate your referrals.  Happy first day of summer 2011!

Posted in markets. Tags: , , , , . Leave a Comment »

What’s Going on in the Markets – Thursday June 16 2011

June 22, 2011 — Sam H. Fawaz

The past several weeks in the stock markets have been quite trying for anyone paying close attention to what’s been going on.  As of today (Thursday June 16), we are working on a possible seventh down week in a row in the stock markets.  Since 1933, this has only happened three times, while the markets being down six weeks in a row has occurred seventeen times. Tomorrow is our last hope of an upside rally that takes the markets positive for the week and avoids making history by being the fourth time we see seven down weeks in a row.  Despite how bad this may sound, the selling has not been so intense to be considered anything more than a normal stock market correction within this bull market.
 
Why are the markets so intent on going down? Well, as I described in my last couple of writings, the end of quantitative easing by the Federal Reserve (buying treasury bonds), an apparent slowing in the economy, continued debt woes in Europe (Greece is in the forefront this week), and the failure of Congress to pass an increase in the debt ceiling.  Employers remain reluctant to hire new employees due to uncertainty surrounding health care and other financial legislation (e.g., the burdensome health care costs involved with hiring a 25th employee).
 
Of course, with several weeks down in the markets, every doom and gloom scenario and “Johnnie’s come lately” hawking another “End of the World” book come out of the woodwork, make the talk and news show circuits and call for Dow 5,000 and S&P 300 (they’re around 12,000 and 1,268 right now.)  Just yesterday, noted economist and academician Robert Shiller declared that we are definitely headed for another recession (of course we are, but it won’t be this year and probably not next year!)  Am I concerned that the economy may be slowing? Of course I am.  But to date the weight of evidence is that we are slowing, not stopping or switching to negative growth.  We endured a similar “soft patch” last spring and summer and the markets have made new highs since then. I continue to believe (guess?) that the disruption in the global supply chain caused by the Japan earthquake tragedy has thrown a wrench into the worldwide economic recovery story and that the second half of 2011 will see growth re-accelerate. Those who state otherwise are also guessing.
 
I stated in my last “What’s Going on with the Markets” newsletter that I believe that we are probably headed to test the 1,257 (the Japan earthquake low) or 1,250 level on the S&P 500 stock market index. Today we hit 1,258 before settling up at around 1,268. Was today the bottom? I really don’t know (neither does anyone else).  But all the signs and indicators that I pay attention to would indicate that today’s successful test of the Japan low might be sufficient to give the market a bit of a lift, at least temporarily.
 
So what do we do in the case of a market correction like this? If the decline is more than modest or is expected to be more than modest, we hedge client portfolios with leveraged inverse funds or options. This helps us keep our investment positions in place while hedging the risk a bit.  While this doesn’t totally protect the downside, it does allow us to mitigate (and perhaps profit) from the downside in the markets.  When we hedge portfolios in this manner, we take a portion or all available cash and buy the inverse funds on a temporary or “rental” basis. We may be in these inverse funds for a few hours, days, weeks or months depending on the market action. 
 
By definition, a hedge may be a drag on overall returns while it is on, but it can also be profitable if you manage it properly and the markets are not too volatile.  When market indexes give signals that the downturn may be over and a new uptrend may be afoot, we take off the hedges to fully benefit from the uptrend.  While no one person (including me) can perfectly time the market top or bottom, you can learn the rhythms, signals and technical indicators of the market and protect portfolios.  While some may be concerned with trading costs of hedging a portfolio, keep in mind that commissions are relatively cheap (and quite cheap compared to the protection the hedges provide).
 
I expect that we will bounce back a bit tomorrow and perhaps rally over the next week or so because the market is quite a bit “oversold”.  As a result, I removed our portfolio hedges today (at a small profit) to take advantage of such a rally.  Summer markets tend to be low volume and volatile, so I’m not sure that any rally will be sustained throughout the summer, but I don’t see us selling off in a big way.  When a new confirmed market uptrend asserts itself, I will be the first to deploy new cash into the market.  I will however reiterate, as I have in the past, that no one should trade or invest based on my prognostications. While I continue to be positive on the market, you should consult with your own advisor (or us) before making any investment decisions based on my comments. 
 
We are happy to speak with anyone who might be interested in discussing financial planning or money management.  As usual, there is no obligation, pressure or cost for speaking with us. If you have any questions about this market update or any other financial matters, please don’t hesitate to contact us.

Posted in markets. Tags: , , , , . Leave a Comment »
« Older posts
Newer posts »