Presentation Transcript

1. Monthly Market Review “High Risk, Low Reward, And 2012 Investment Ideas That Fit The Times” January 19, 2012 Kevin M. Wilson, ChFC, PhD President/CEO/CIO Dheenu Sivalingam, MBA AVP/CCO/Senior Analyst Ted A. Pavlovich, WMS VP Wealth Management Office: 218-464-4399 Toll Free: 877-327-5062 Fax: 218-464-4397 Email: info@bluewater-cap.com www.bluewatercapitaladvisors.com 1314 E. Superior Street Suite 2 Duluth, MN 55805 1
2. IntroductionTed a. pavlovich 2
3. What we learned in 2011kevin m. wilson 3
4. Structural Debt Problems In Europe Have Not Been Resolved
5. The EU Nations Will Also Raise Taxes, Privatize Assets, Cut Spending, and/or Devalue The Currency 5
6. Loose Money Hasn’t Fixed Economy, But Has Helped Banks Recover; Only De-leveraging Will Work
7. Markets Are Macro-Driven Over Intermediate Term
8. Technical Analysis Helps With Surviving Volatility, But Must Be Used On A Large Scale
9. Twelve predictions for 2012kevin m. wilson 9
10. President Obama Will Lose Based On Current Data, Given Historical Tendencies Current NFP vs. Trend Current GDP Forecast Current DPI vs. Trend
11. Euro-zone Debt Crisis Is Hurting The Global Economy 11
12. EU Crisis Will Peak… …And A Big Bank Will Fail… …But Then ECB Will Print Money
13. The Federal Reserve Will Initiate “QE3”
14. Recession or Not, The Economy Will Be Sluggish For Years Banks
15. Deflation Will Continue… …Because De-Leveraging Will Take Many Years
16. Profit Margins Will Mean-Revert… …Helping Bear Market To Continue Downward
17. Flash crash of 05/2010 Demonstrated ETF Trading Risk; This Risk Continues 17
18. After Market Correction, Supply & Demand Problems for Oil Will Continue in 2012 32 BBO/Yr. 13 BBO/Yr. 18
19. China and India Will Again Put a Strain on Global Food Supplies Later in 2012 19
20. Macro-economic constraints on the risk/reward matrix in 1h/2012Kevin M. Wilson 20
21. 2012 Poor Choices on Risk/Reward Analyses Have Consequences 2010
22. Graphing The Risk/Reward Matrix Chinese Assets German Assets Italian Assets Greek Assets
23. Macro: Real DPI (blue) Falling Rapidly, Raising Risk to Economy & Markets, As Real Final Sales (red) Will Follow
24. Macro: Trend Is Improving, But Level Of Retail Sales Is Still Very Low
25. Macro: PCI Index Flat-to-Down, Level Is Low
26. Macro: Consumer Confidence Improving, But Level Very Low
27. Macro: Divergence Between S & P 500 & Treasuries Indicates Pivot Point
28. Macro: Italian M3 Money Supply Looks Very Dangerous, And Perhaps Is Partly Off-Set By Black Market Activity; However, Similar Examples Include Russia, Greece
29. Allocation Levels Informed By Macro Constraints On The Risk/Reward Matrix (Currently Favors Bonds)
30. Long Bear Market Episodes (Bond Rallies) Are Followed By Huge Stock Rallies ?
31. Individual Stocks: Risk/Reward Diagram Useful Kodak Stock
32. Some winning ideas from 2011 that Should work again in 2012 TED A. PAVLOVICH 32
33. Buy Dividend Payers?!
34. Buy Zeros?! Buy US $?! Composition of DXY Gold?? 34
35. Secular Themes: Long Term Consumption Trends 35
36. Changes In Protein Consumption Will Continue As incomes rise above subsistence levels, high-value food products become more prevalent in diets. Such products include meat and processed foods like fats, oils, and confectionery products. As shown in the above graph for China, India, and Brazil, protein consumption has the largest projected growth potential. 36
37. Water Purification Will Be A Big Problem, Due To Demand For Oil, Gas, and Food 37
38. EUROPEAN AND OTHER CRISES WILL PROVIDE BIG INVESTMENT OPPORTUNITIES DHEENU V. SIVALINGAM 38
39. EUR Weakness is Good for European Companies European equity outperforms 88% of the time when Euro weakens. Organization for Economic Co-operation and Development estimates that, for every 20% drop in the Euro, the Eurozone will enjoy a 1.6% boost to real economic growth. And corporate earnings will rise 22%. If these benefits outweigh proposed austerity measures to cut spending and raise taxes, we could see quick European equity outperformance; most likely it will be good for some countries and not so good for others. 39
40. European equities that generate more than half of their revenue from outside Europe will benefit the most. 40
41. Being a Contrarian The road ahead won't be easy. Investors must focus on the Eurozone countries that stand to benefit the most from the Euro's slide. Like any contrarian countertrend idea, calling the exact bottom of this downturn is impossible. Moreover, it's likely that a few years down the road, the PIIGS will end up restructuring their debt anyway, much like Dubai recently did. Europe is headed for change, in that either it will emerge from the crisis with greater fiscal unity, or with a different membership. Either way, the Eurozone will be different to the one that exists today, something investors need to understand. 41
42. SCREENING FOR WINNING STOCKS IN A FLAT MARKET DHEENU V. SIVALINGAM 42
43. Investing in Flat Market Be good stock pickers rather than closet index trackers. 43
44. Look for companies with low expectations. Investors can sometimes become overly pessimistic about the prospects for a company for many reasons. But a strong business that has maybe just hit a temporary snag can generate extraordinary returns, if it is able to right the ship. Look for companies who have a strong innovating culture, There have been many technological advances since 1998, but not all of them have led to profitable growth for firms. The companies that have succeeded at innovating are the ones that have banked real profits and produced positive cash flow for their owners. Look for companies who are in a favorable industry trends. A rising tide lifts all boats. In other words, some companies have seen strong gains simply because of the industries they operate in. These companies have the wind at their backs and don't have to fight tooth-and-nail to steal market share in order to grow. The pie simply grows larger and everyone wins. 44
45. Look for companies who have a strong dividend and dividend growth. Although dividends have historically accounted for close to 40% of the total return of the stock market, they were not very fashionable in the late 1990's. But in this era of super low interest rates and choppy stock markets, the dividend stock seems to be making a bit of a comeback. Not only can you get a higher yield right now on many blue chip stocks than you could on a 10-year Treasury note, many of these companies consistently raise their dividends each year. There are strong tax advantages as well, assuming tax laws don’t change. Look for companies who have attractive valuations. Fortunately for long-term investors, valuations on the S&P 500 are much more attractive than they were in 1998. But that doesn't guarantee strong returns for the stock market over the next decade. Be disciplined. Don't buy it unless the price is at the level you believe is at or below the true value of the company. In long periods of a flat or sideways market, you want the holding of the stock to be worth your while. 45
46. -Risk/Reward Dangerous, But Market Wants To Go Up Near Term -Economic Data and Earnings Should Cause Doubt Going Forward -We are Ready For Either Case, But Currently Positioned Against Risk -If Market Sells Off, Risk/Reward Will Be VG & Huge Opportunity Awaits Summary & Conclusions KEVIN M. WILSON 46
47. Disclaimer This report is provided for informational purposes only and does not constitute an offer or solicitation to purchase or sell any security or commodity and is not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Any opinions expressed herein are subject to change at any time without notice. Information has been obtained from sources believed to be reliable, for its accuracy and interpretation are not guaranteed. Investing in securities involves risk, including possible loss of principal. Past performance should not be taken as an indication of guarantee of future performance and no representation, express or implied, is made regarding future performance. The firm does not provide tax advice; clients should contact their attorney, accountant, or other tax adviser regarding tax matters. Blue Water Capital Advisors, LLC is an SEC registered investment advisor. Not FDIC insured. No bank guarantee. May lose value. Not a deposit. Not insured by any federal government agency. Blue Water Capital Advisors, LLC is not affiliated with National Bank of Commerce or NATCOM Bancshares, Inc. 47