Hello,
Linked below is an article that expresses concern about current market's valuation with respect to the upcoming reporting of corporate earnings that starts this week.
http://www.reuters.com/article/2012/10/07/us-usa-stocks-weekahead-idUSBRE89604M20121007?
Yesterday, I spent several hours reviewing my portfolio’s holdings which include many asset allocation funds using Moringstar’s Instant Xray on each fund. I discovered many of the asset allocation funds that I own had increased their allocation to cash from my last review thirty days ago. When, I studied the whole portfolio using the Xray report I discovered that my cash allocation had increased by another five percent over what it was a month ago and the equity allocation had been reduced from about 50% to 45%.
With this, it seems many of the fund managers that I employ, by investing in their funds, seem to be expecting market volatility as they have positioned for it by increasing their allocation to cash. Interestingly, my portfolio’s allocation to bonds remained about the same at about 30%.
Have a good day … and, Good Investing.
Skeeter
Comments
Thanks for stopping by and making a few comments. After the elections there are other items of uncertainty … we have the fiscal cliff and then there is Europe. I would like to think that equities will be moving forward after the first of the year … but, that is a little far too far out to have a feel for what might happen. Corporate earnings from my thoughts are the primary driver of stock valuations. If corporate profits and revenues remain soft, so will their stock’s valuation. It is interesting that I am now seeing reporting that the projected trailing earnings number on the S&P 500 Index for 2012 will fall in the $100.00 range. If this turns out to be so, then the Index with a price range of 1450 would be selling at a trailing P/E Ratio of 14.5.
Many say a normal trailing P/E Ration ranges form 14 to 16 and a forward P/E ratio would be in the 13 range. So with this, it could be possible for stocks to trade sideways for a while as we move forward through these upcoming issues since the Fed has again doctored the system with another round of easing (QE3).
Let’s see, projected falling corporate earnings, the Presidential election, the fiscal cliff and then the European mess plus some other stuff, to me, all create a sea of uncertainty. But, stocks seem to be the only game in town right now for traders. I feel investors, like me, will start buying equities again when they feel good value can be had. Right now though there is a lot of uncertainty as to what is really in that brown paper bag of what is called stocks.
And, yes, while Instant Xray reflected an increase in cash and a reduction in stocks, I’ll add, those are the net numbers as the portfolio is about 110% long and 10% short for a net total of 100%. So it could mean some hedging is at play too through the short positions as they are up a little form past reporting too.
Have a great day … and, Good Investing,
Skeeter
As I've noted in other threads, I continue to think that various sectors will continue to do well - agriculture, infrastructure/hard assets and mobile-related, etc. The other key sector that I think will do well is financial services/tech, as I believe more and more basic banking will be done via mobile and online.
There are 1.7B people with a phone and no bank account (and probably millions who are unsatisfied with their bank for basic banking due to monthly fees and otherwise), and Amex, MC and Visa are going after them. There will be - I think - a lot less bank branches over time. While I think it won't happen overnight, it will be interesting to see companies like Visa trying to move more into offering basic banking services.
American Express just launched their new Bluebird bank account alternative at Wal-Mart yesterday.
http://www.cnbc.com/id/49327154
"A prepaid debit card called Bluebird, created through a partnership with American Express Co. (AXP), will be available in more than 4,000 U.S. Wal-Mart stores and online next week, the Bentonville, Arkansas-based company said yesterday in a statement. Services include direct deposit, automatic bill pay and remote check capture using a smartphone application. The card has no monthly or annual fees, and doesn’t require a minimum balance.
“Bluebird is designed as a checking and debit alternative,” Daniel Eckert, vice president of financial services for Wal-Mart U.S., said in an interview. The product is for “those customers who are waking up to the skyrocketing costs of having a checking account.”
http://www.businessweek.com/news/2012-10-09/wal-mart-offers-bank-account-option-with-american-express
Again, earnings are going to disappoint to some degree - I think - in many instances, but while the overall market may become more volatile again, I think there are a lot of big changes going on in (or due to) technology (big names like HP just unable to catch up), finance ("financial inclusion" as Visa and others go after over a billion people with a phone and no bank account) and elsewhere that may provide opportunities.
Additionally, I'm finding it rather curious that Amazon and Google are now essentially offering a variation of vendor financing.
http://www.zerohedge.com/news/2012-10-08/online-retailers-launch-vendor-financing-apple-credit-corp-imminent
Finally, as for bond inflows, from Marketfield's August letter:
"Week after week, billions of dollars leave domestic equity funds and relocate in fixed income vehicles, despite the apparent lack of return
potential in the latter. The rationale, as far as we can determine, has nothing to do with prospective returns and everything to do with a combination of hindsight and emotion.
People are fed up with stocks not because they believe the return characteristics to be inadequate, but because they cannot tolerate the emotional impact of equities’ volatility. The present day volatility of publicly traded companies is a function of regulatory failure as pertains to market structure and not anything intrinsic in businesses. We don’t dismiss the real, emotional pressure of dealing with seemingly random, violent
moves in quoted prices. It is a constant factor in our daily lives as fund managers. We do, however, see enough of it first hand to realize just
much of it has to do with failures of market structure and how little with real business or economic results. Bonds have become the favored retail asset because of their historical results and apparent lack of volatility. "
http://www.nylinvestments.com/public_files/MainStay/PDF/Marketfield/MFLDX201208.pdf
With having to devote more time to work ... I am not able to get to the board as I have in the past. I take a good bit of the summer off and my boss takes a good bit of the fall off. With this, I have more things to do during the day at work. So it is now about 3;30 AM Eastern and from a quick check of the foreign markets I am finding most of them are soft.
On to earnings season and the states side market. From what I have been able to research and read I am finding that anticipated full year 2012 earnings will most likely come in beween $98.00 to about $103.00 range for the S&P 500 Index. So let's just round it to $100.00 for this excerise.
Currently, the S&P Index is about 1440 as of 10/09/2012 market close. I am thinking though I'll become a buyer around S&P 1400 and with this I'll be buying towards the lower range of what many consider a normal P/E Ratio of 14 to 16. On trailing earnings I am finding that the index is currently selling on about a ratio number of 16. So it has now worked its way back into the upper range with this modest pull back from a recent high of about 1475 and with this as it was selling at about a 16.4 trailing P/E Ratio number.
Going to get my buying britches on soon ... if we see somewhere around 1400 on the Index ... might have to step up and pay more than I want inspite of knowing stormy seas might lay ahead as we still have a lot of issues to transverse through this quater and into 2013.
Still, many from what I have read feel equities are the only game in town right now.
Even so, I'd say govern with caution and be mindful of one's risk tolerance. I know I plan to keep within my asset allocation as I plan to raise equities from about 45% (last Xray review) to about 50%, or so, and from there let capital appreciation work and get them to about 55%, or more, through anticipated appreciation going forward. Then trim them back booking some profit as they become more fully valued. Still I feel it is a time to walk softly.
Have a great day and ... Good Investing.
Skeeter