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.

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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.

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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.

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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.

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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.

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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!

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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.

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What’s Going on in the Markets – Monday June 6 2011

June 22, 2011 — Sam H. Fawaz

Today marked the fourth day in a row of intense selling in the stock markets immediately after the markets gave a technical “buy” signal last Tuesday.  Last Wednesday, the markets staged a hard reversal to the downside and have not yet recovered.

Economic indicators of late have been coming in worse than expected with recent slowdowns in manufacturing and hiring and higher unemployment claims. Last Friday the labor department reported the creation of 54,000 new jobs during the month of May while analysts were projecting 150,000-175,000 new jobs created.  Needless to say, the markets were disappointed and continued the sell-off that started last Wednesday.

While there are many possible reasons discussed for the market’s indigestion (e.g., the end of the Federal Reserve’s bond buying program in June, the earthquake in Japan, continued sovereign debt woes in Europe, lack of agreement in Congress on extending the debt ceiling, lower consumer confidence, high joblessness), no one really knows the exact reason why the markets sell off on any particular day.  As I indicated in a previous message, institutions take profits periodically on positions to help reset prices and make the market more enticing for those standing on the sidelines waiting to buy at lower prices.  While the institutions (who make up the bulk of buying and selling in the markets) may view slower growth as reasons to sell, they have not been selling with wild abandon by any means.  So one could say that the correction has been somewhat orderly (but any declines in prices are never pleasant).  In other words, institutions don’t appear to be positioning for a bear market or a recession in the near future.

My intermediate and longer term indicators are still bullish even as this 5% correction (so far) may get to 10%.  As a reference point, the markets corrected 13-15% last summer and that set us up for much higher stock prices.  While the gains we’ve seen so far will likely not be repeated, I still expect a respectable finish for the year with a positive return in the stock markets (though my crystal ball is in the shop, so please don’t make any investing decisions based on this prognostication.) The summer months tend to be volatile and of low volume, so market swings are frequent and sometimes abrupt.  I believe that corporate earnings (which ultimately drive stock prices) will continue to surprise to the upside (if they’re not hiring, then costs stay low).  The effects of the tragic Japanese earthquake, which caused a hiccup in the markets this quarter, will begin to wane and offer opportunities for companies to help with the rebuilding, and thereby also help with future corporate earnings.  Finally, the costs of oil and other commodities overall have come down and will ultimately reduce inflation pressure.

How should you handle this correction? For most, doing nothing may be the right answer and simply “ride out” this correction.  For my clients, I have once again begun hedging portfolios in case the correction proves to be more protracted than expected.  I have already become more defensive by reducing more risky types of positions and adding more defensive ones.  But in an overall stock market correction, ultimately 3 out of 4 stocks will follow the market down, so there’s no good place to really hide. As this correction plays out and support wanes for certain sectors, I will slowly scale out of those positions and wait to buy them back at lower prices as appropriate.  If necessary, I will add more to our hedges to reduce our overall equity exposure and risk.  New positions are on hold until a new uptrend is confirmed.  This is by no means a recommendation of what you should do with your portfolio if you’re a “do-it-yourselfer”, so please consult with a professional (like me!) if you’d like to protect your portfolio or figure out what you should do.  Every investor and his or her goals are different, and that’s how we handle each client–individually.  In any case, the correction may take us down to the 1250 level in the S&P 500 index (the March 2011 Japan earthquake low) or down to 1200 (less likely in my opinion).

With four down days in a row, we might see a bit of a relief rally tomorrow (Tuesday), but I’m not expecting any type of big reversal.  With the amount of selling that has been going on lately, I just don’t expect the markets to turn around that quickly and “rip” to the upside without a catalyst. Ultimately, corrections are healthy for the markets and they will recover in time. It’s just never fun to watch the markets (and our portfolios) go down, but if you’re a long term investor, this is merely a bump in the road.  If I see that circumstances have changed and my technical indicators flash warning signs, you can bet that you’ll hear from me again and I’ll be taking appropriate action.

I welcome your questions and feedback. If you’re not yet a client, keep in mind that your first consultation is complimentary and comes with no pressure and no obligation whatsoever.  As a fee-only advisor, I put your interests first and work as your fiduciary. Not all advisors can make this statement.

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How to Choose a Financial Advisor

March 31, 2011 — Sam H. Fawaz

You know the importance of saving for retirement, but do you have the time and know-how to accomplish your financial goals? In an increasingly busy world, it’s possible that keeping close tabs on your investment accounts isn’t exactly realistic.

Seeking the help of financial professionals has become more important to investors according to a recent survey conducted by Harris Interactive on behalf of TD Ameritrade Holding Corporation, as nearly one quarter (22 percent) of investors report relying more on a professional investment advisor following the recession.

Even if you have a good handle on your investments, you may find that hiring a financial advisor — who can put the time and energy into making sure you and your family plan for a secure financial future — may be a worthwhile investment. By hiring an independent registered investment advisor — commonly referred to as an RIA — you can make sure your investments are managed on a full-time basis by a professional advisor, while still having control.

Of course deciding to put someone in charge of your hard-earned money is not a process to be taken lightly.  Our preferred custodian, TD Ameritrade,  and we offer these tips to consider as you choose an independent financial advisor or RIA:

* Just as it is wise to do research on the background of anyone who would take care of your children, you should investigate the person or company you enlist to handle your money. The Securities and Exchange Commission, Inc. (www.adviserinfo.sec.gov), Financial Industry Regulatory Authority (www.finra.org), Certified Financial Planner Board of Standards (www.cfp.net), National Association of Personal Financial Advisors (findanadvisor.napfa.org/Home.aspx), and Financial Planning Association (http://www.fpanet.org/PlannerSearch/PlannerSearch.aspx), as well as your own state securities agency all collect background information on financial professionals that can be accessed through their websites. Use these sites to make sure the advisors you are considering haven’t faced disciplinary action for dishonest practices and are in good standing with regulators.

* Know the difference between working with an independent RIA and a stock broker, or other financial services provider. Independent RIAs, for example, are bound by law to act in their clients’ best interest. Brokers, on the other hand, are held to a “suitability” standard, meaning the advice they give must be suitable to that client’s situation. If you are looking for objective, comprehensive money management, you might want to consider an RIA.

* While RIAs are required by law to act in your best interest, there are other ways that you can ensure they will do what is best for you. One is to ask how they are compensated. Fee-only compensation generally minimizes conflicts of interest and means that your advisor is paid only for the management services and advice he or she offers, and only by you, not by investment product providers. When an advisor is paid on commission, there’s a greater chance he or she will make choices with your money that serve not only your interests, but their own as well. That’s not to say that advisors do not work fairly under this model, but potential conflicts of interest are something to consider as you choose an advisor.

* When looking for referrals from friends or relatives, the most valuable referrals may come from those in similar situations. It’s also a good idea to ask potential advisors if they specialize in working with certain types of clients and choose one that fits your unique profile.

* A third party custodian should also handle all your deposits, to ensure checks and balances. An independent custodian like TD Ameritrade can help ensure the safety and security of your assets, and will provide you with a clear, concise statement every month. A duplicate monthly statement is also sent to your advisor. Make sure this is also a legitimate and upstanding business.

Working with a trusted independent fee-only RIA can help you realize your financial goals, while allowing you to spend less time worrying about and managing your investments. If you need help and would like to talk to a fee-only planner with no sales pressure, cost  or obligation, please visit our web site at http://www.ydfs.com or call YDream Financial Services, Inc. at (615) 395-2010 or (734) 447-5305.

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What’s Going on With the Markets-March 10, 2011

March 10, 2011 — Sam H. Fawaz

Since the beginning of last September, the stock markets have enjoyed a nearly uninterrupted bull uptrend which has been unprecedented in market history.  Fueled by improving economics and Federal Reserve actions, the uptrend has withstood many geopolitical, fiscal and news driven setbacks.  But today the political unrest in the Middle East, issues with Spanish debt repayment and a higher than expected weekly first-time unemployment claim number (497,000) were the 1-2-3 punch that the markets could not recover from and therefore we suffered a 1.5-2.5% setback.  Be it stocks, gold, silver or oil today, they were all down today.

Normally, up-trending bull markets such as the one we’re in take rest periods, or “corrections” as they’re called, every couple of months while individuals and institutions take profits on stock positions and reset stock prices back to normal levels. Corrections (usually 10-20% of an index value such as the S&P 500) are healthy for the market and while uncomfortable if you watch them unfold from day to day, allow the markets to set up for the next leg up.  Two years to the day yesterday into this bull run have seen us move up about 100% from the March 9, 2009 lows on the S&P 500 index. Without a doubt, this has been an incredible run and I hope you’ve been participating.

As I’ve discussed with clients and prospects recently, a correction in the market has been long overdue and anticipated.  While today was the first big down day where we really tested key levels in the indexes, there have been several signs of exhaustion in the market. Despite this, I cannot say with certainty whether we’ve definitively entered into a correction period (technically we have, but it needs to be confirmed with follow-through on Friday and next week.)  If the bulls get their act together tomorrow and “rescue” the market by pushing it back up through heavy volume buying, then this decline may be “all she wrote.”  If not, we could head down to test the 1275 level of the S&P 500 index (we closed at 1295 today).  A failure to hold the 1275 level means that large institutions have decided to continue selling and a drop to 1240 may need to exhaust sellers.

With the “Day of Rage” demonstrations scheduled for Friday in Saudi Arabia, rocketing oil prices and sovereign debt issues, the odds of avoiding a deeper correction are not very high.  Besides, this correction is long overdue and may occur regardless of how peacefully the Middle East situation is resolved or even if oil prices come back down to earth.

What do I think? As I’ve mentioned before, the Federal Reserve has made investing in anything but the stock market earn near zero returns. That is, the government wants us to buy equities, push the stock market (and IRA’s and 401(k)’s) higher, to make us feel richer and more confident and therefore spend more.  Spending more creates demand which in turn creates jobs and so on.  So I believe that the gentle (if somewhat invisible) hand will come in to help support the market and avoid a protracted decline that might scare off the latest entrants into the market. While my crystal ball is still in the shop, I believe that a decline beyond 1275 in the S&P 500 (another 1.5%) is a stretch.  While that would make it a very shallow correction, it may be enough to breathe new life into the stock market and help resume the uptrend.

So what should you do now in light of a possible correction?  Basically, you shouldn’t do much if anything since nothing is confirmed.  If you’re investing on your own, trying to time your “in’s and out’s” of the markets is nearly impossible and not recommended unless you’re an experienced trader.  If you have a profitable position and worry about it turning into a loss, you may decide to sell a portion or all of it.  More savvy investors may be able to hedge their positions with options or inverse ETF’s if the decline proves to be protracted.  From our end for our clients, I’m watching the market technical levels on a daily basis like a hawk and already have begun to harvest some profits and protect some positions. If a protracted downturn does materialize, I may also hedge portfolios with inverse ETF’s and selectively liquidate partial positions.  But we’re not there yet and I’m not making any recommendations.  And by no means do I think we’re entering another bear market (by definition, a bear market begins when we decline 20% from the last peak in a major index).  Non-clients should consult their current advisor (or me) if you’re unsure what to do in the event of a protracted decline and should not treat this as a recommendation to buy or sell anything (see disclaimer below).

Last year we declined nearly 15% from May through August amid sovereign debt worries and economic uncertainty and then proceeded to push up nearly 25% over the next six months. I still believe that we will end 2011 with double-digit gains in the markets as this economy matures from recovery to expansion.  All economic indicators point positively and last month we even added nearly 200,000 new jobs.  We may even see housing perk up a bit later this year.  Without a doubt, sustained oil prices above $125 per barrel and $4 gasoline for an extended period (6 months or more), will put a crimp into the expansion, but I don’t believe we’re heading for a long term spike in oil prices.  Let’s just say that the oil producing countries learned what supply constraints and speculation did to oil demand the last time oil spiked to $145 a barrel. More electric and hybrid cars is just one example of how we are learning to live with less demand for foreign oil.

I hope this message helps alleviate any anxiety over the recent down days in the market.  Remember that the media loves good negative stories to help sell newspapers and advertising. Avoid the noise and try to keep your sanity during the days when it seems like there’s always something bad going on in the world.  Middle Eastern concerns have been a worry for decades, if not centuries now, and likely won’t be resolved during our lifetimes.  Like every other world incident, the markets get back to normal and we get through them.

Enjoy the upcoming weekend and don’t hesitate to contact me if I can be of any help.  If you’re not a client, your consultation with me is complimentary, no-pressure and with no obligation.  I’d love to talk to you whether or not you’re considering hiring a financial planner or money manager.

Sam H. Fawaz CFP®, CPA is president of YDream Financial Services, Inc., a registered investment advisor. Sam is a Certified Financial Planner (CFP®), Certified Public Accountant and registered member of the National Association of Personal Financial Advisors (NAPFA) fee-only financial planner group.  Sam has expertise in many areas of personal finance and wealth management and has always been fascinated with the role of money in society.  Helping others prosper and succeed has been Sam’s mission since he decided to dedicate his life to financial planning.  He specializes in entrepreneurs, professionals, company executives and their families.

All material presented herein is believed to be reliable, but we cannot attest to its accuracy.  Investment recommendations may change and readers are urged to check with their investment advisors before making any investment decisions.  Opinions expressed in this writing by Sam H. Fawaz are his own, may change without prior notice and should not be relied upon as a basis for making investment or planning decisions.  No person can accurately forecast or call a market top or bottom, so forward looking statements should be discounted and not relied upon as a basis for investing or trading decisions. This message was authored by Sam H. Fawaz CPA, CFP and is provided by YDream Financial Services, Inc.

My no-nonsense no-spam policy: If you’d prefer not to receive future updates, just reply and let me know by typing “unsubscribe” in the subject (please don’t hit the spam button-it just puts me on a universal spammer’s list which is tough to get off of.)I’ll take you off my list immediately and permanently.  I will never sell, share, rent or give away your e-mail address to anyone.  Period.

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