Quote Of The Day

"The favorable stock market expectations and even more favorable personal portfolio expectations don’t seem to line up well with views of the economy, interest rates, taxes and government stimulus plans.

Confidence improvements may warrant a better market, but improvement within negative parameters does not warrant persistently strong markets.

We have gone from a brush with near death to very sick, but are not yet healthy".

Richard Shaw

Investing lesson:

This is no time to become giddy, over committed or complacent. Stay alert.

Time to Take "Some" Chips Off The Table

After a difficult 2008, the model portfolios we manage at Wade Financial Group, Inc. (WFG) thus far have had an exceptional 2009. Across our various strategies, we are on average significantly ahead of our benchmarks. Below you will find a sampling of results as of 7/24/09:

Portfolio	2009 Results as of 7/24/09
Benchmarks
Schwab Money Market	0.2%
Barclays Cap. Agg. Bond Index	2.6%
S&P 500 Index	10.0%
50/50 Mix Barclays C.A. Bond/S&P 500	6.7%
Wade Investments Portfolios
WI CA Bond	16.1%
WI AA/TRA	14.3%
WI DCS Balanced	15.5%
WADEX Fund	8.7%
WI AP-AIA	14.9%
WI CA U.S. Stock	10.0%
WI CA Global Stock	16.5%

From its March low, the S&P 500 index has jumped a whopping 44.7% as of 7/24/09. Over the past month, world stock markets experienced an approximate 10% correction, just to battle back to 2009 highs as of last Friday.

Despite the growing consensus view that the U.S. is coming out of the recession, I am suspicious of the “glow” that too many prognosticators are placing on the potential pending economic recovery. There is only so much cost cutting and layoffs that corporations can do to improve their earnings. With more layoffs coming, a real estate/liquidity market that has yet to fully unthaw, a still tapped out consumer, trillion dollar budget deficits and probable tax increases, it is hard to buy into the “recovery glow” forecast.

Contrarian Investing

It was in March of this year that all of the above numbers in the table (except money markets and bonds) were seriously in the negative. Many investors got scared, sold their stock investments and parked the proceeds in a money market account. Please notice the return of 0.2% thus far in 2009 for the Schwab Money Market account. We stuck to our guns and remained invested for what we felt would be an explosive recovery that did indeed happen (44.7%). After these attractive returns that we have achieved for our clients thus far in 2009, prudence dictates that it is now time to “take some chips” off the table. The following moves have taken place this week:

Portfolio	Prior Stock Exposure	New Stock Exposure
WI AA/TRA	65%	56%
WI DCS Balanced	54%	51%
WADEX Fund	55%	49%
WI AP-AIA	50%	40%
WI CA U.S. Stock	88%	88%
WI CA Global Stock	91%	91%

The sale proceeds from the reduction in stock exposure have gone to three areas:

1. Cash
2. Managed Commodity Futures
3. Managed Foreign Currency Futures

You may recall that in 2008, the Managed Futures asset class was one of the few that actually made money, other than Cash and U.S. Treasury bonds. We like Managed Futures because of the low historic correlation to stocks. To speak in plain English, low correlation means that when one asset category “zigs” the other “zags”. True to form, while Managed Futures did well in 2008, the category has lost approximately 5-10% thus far in 2009. We think that it now makes sense to sell stocks that have gone up 44% (or 60% for Emerging Markets) and reallocate the proceeds to a category that we feel can do well if the stock market experiences another significant downturn, of which, can happen at any time!

Preview of Coming Attractions

I have spent the past two weeks performing an exhaustive analysis of the “low correlation” investment thesis. The challenge to the strategy is that history does not always repeat itself.

• In 2008, the benefits of diversification into asset classes that had historically offered the “reduced correlation effect” all but evaporated.
• The challenge is ongoing in regards to how to mix the “investment soup” so that it results in the desired pleasing taste (avoidance of steep losses).
• The soup tasted bad in 2008 and we are applying significant resources to reorient our portfolios moving forward so that the severity of 2008 it not on the menu in the future.

Within the next month we will unveil a “reengineered” approach to portfolio management that will place the focus sternly on what we believe will be an improved approach to the preservation of capital across future economic storms.

Investing lesson:

Moving to an “all cash” position, as many self-directed investors did at the beginning of 2009, ruined any chance these investors had of recouping losses experienced in 2008. It never makes sense to make all or nothing bets on the direction of the stock market. Congratulations to all readers of this blog that did not fall prey to the temptation of “selling at the bottom”.

To view my blog in its original glory and formatting, visit http://jerry-b-wade.blogspot.com.

I Am Back!

After starting my blog a number of months back, I have played hooky for two months. The time out is over and I will be bloviating on a more regular basis moving forward!

A Broken Clock Is Right Twice Per Day: This Does Not Make a Sound Investment Plan

"An optimist is a person who sees a green light everywhere, while a pessimist sees only the red stoplight.... The truly wise person is colorblind."

-- Dr. Albert Schweitzer

Click the blog title above to visit theSTreet.com where you can read an outstanding article by Doug Kass on why "perma-bears" and "perma-bulls" seldom make money. This is a must read!

My Updated Stock Market Forecast

When the media is full of both “bulls and bears,” what does the intelligent investor do in times of economic uncertainty? As of 5/26/09, the S&P 500 Index was at 908. I believe there’s at least a 50% chance that the S&P 500 may go as high as 1,100 in the next twelve months. If this happens, you can expect many ups and downs along the path of getting there.

Right now is an excellent time for long-term investors to purchase high-quality large-cap U.S. equities still selling at bargain prices. In the near to midterm, however, I do not have a great deal of conviction about the direction of the S&P; I wouldn't be surprised if the S&P hits 1,100 and place the odds at less than a 25% chance that we will retest the lows reached in March. If the S&P moves above 1,000, I will be inclined to lighten equity weightings because of the uncertain nature of the current rally.

What May Drive Stocks Higher From Here?

The quotes below are from theStreet.com:

"There's a lot of pent-up demand. Buyers come right back in [when there's a pullback]," says Marc Pado, U.S. market strategist Cantor Fitzgerald. "Institutions want this market lower because in the last two weeks they have raised cash and lagged putting it to work."

Mutual fund managers are typically rated on their relative performance, and at a certain point, holding all that cash starts to weigh them down, says Bill Stone, chief investment strategist at PNC Wealth Management.

The pressure is mounting, because a lot of these funds "got smacked on the way down, then missed the way up," says Stone.

Jeffrey Saut, chief investment strategist at Raymond James, suggests there's about $9 trillion in cash and cash-like investments, and about $4.1 trillion in fixed income. "So there's a little more than $13 trillion, which believe it or not is comparable to total household debt."

But, of course, it's just impossible to figure out how much will go in, says Saut. "There were people who got so burned, they sold at the lows, and they're not going to go back for years. It seems there's nowhere to go but up, but sometimes that sidelined cash stays on the sideline."

What May Happen As We Move Into 2012-2013?

A recent study by the Leuthold Group indicates there are several independent methods that seem to triangulate on the years 2012 and 2013 as candidates for another significant stock market low—and perhaps the final low of the secular bear market begun in 2000. In the meantime, they suggest that we are in a cyclical bull market phase right now.

Is Your Life Insurance Company Considered Strong?

TheStreet.com recently released their analysis of the top life insurance companies in the U.S. based upon financial strength and reserves.  This list is provided below. 

You will not find any of the companies that sell "gimmick" annuity products on the above list. Reason why: the companies that offer "to good to be true" product features are now faced with the daunting liability of having to make good on their promises, something that will be very hard to accomplish.  This poses a "ticking time bomb" for the heirs of many current annuity holders.

TheStreet.com Ratings has been recognized as the most conservative grader of life insurance financial strength by a leading consumer publication and was singled out as the only ratings agency that doesn't accept payments from any of the companies it tracks.

Investing lesson: 

There is no such thing as a free lunch.  Be wary of investment/annuity pitchmen.

Magazine Covers As A Contrarian Indicator

I wrote recently that when cab drivers and shoeshine men start giving the public stock tips, this is a sure sign of a market top.

Another very reliable—but not perfect (nothing is)—contrarian indicator is using the covers of popular magazines to gauge what is most likely not going to happen.

The link below is to an article describing this phenomenon, with the topic being the probable direction of oil prices. The April 20th Newsweek cover's title is "Cheap Oil Forever".

Need I say more!

http://seekingalpha.com/article/132702-cover-to-cover-drowning-in-cheap-oil-forever

It was only one year ago that the majority of the media coverage around the world touted that based upon the unrelenting global demand for oil; prices were headed towards $200 per barrel. Since then prices have plummeted, creating an opportunity over the past several months to pick up high quality petrochemical related stocks, at bargain basement prices, with exceptional yields.

Investing lesson:

Magazine covers are really great at informing the public about what has already taken place, and very poor at proving insight as to the future direction of any given topic. That’s why they call them “reporters” not “forecasters”.