Fortune Watch

A Stock Market sell off may be about to begin which could take the Index lower  for the full year. These six reasons demonstrate why one of the most impressive stock market runs may have ended:

1. Markets can’t rise all the time. This probably is obvious to most people. A significant is what a market requires to go higher for a market which has more than doubled in two years. Recent economic news shows that support to be lacking. The S&P has risen to more than double from 683 in March 2009 to almost 1,400 two months ago.

2. Corporate earnings have been pressured by an economic slowdown and margin drops. Many companies in the retail, transportation and manufacturing sectors counted on low commodities prices back in 2009 and 2010 to help profits. That help is gone. Oil has rallied from below $50 in mid-2009 to almost $100 recently. The price is down from $110, but it is still historically high. Prices on cotton and many agricultural commodities have also risen in the same period. The result: The cost of making and moving goods is higher, and margins on items like clothing have dropped.

3. Consumer sentiment has faltered. Recent data from from the Conference Board said “Consumer Confidence Index, which had declined in May, decreased again in June. The Index now stands at 58.5 (1985=100), down from 61.7 in May.” Many retailers have posted slow same-store sales. Activity at the world’s largest retailer, Walmart (WMT), has been down on a same store basis for its U.S. operations.
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The “Bargain Stock Monitor” is one of three market statistics used as performance expectation analyzers for portfolios that are designed and managed using the Market Cycle Investment Management (MCIM) methodology.

It is derived from the month end Investment Grade Value Stock Index (IGVSI) “watchlist” screening program, which identifies IGVSI companies that are trading at least 15% below their 52-week highs.

The “15% down” break-point allows you to keep your eye on “Bull Pen” items. (You really need to be familiar with the selection rules to get the most from the BS Monitor – chuckle – and from the Watch List program.)

The fewer IGVSI equities at bargain prices, the stronger the stock market and the more “smart cash” you should be accumulating in the equity asset allocation “bucket” of your investment portfolio. As the list of bargain stocks grows (indicating market weakness), portfolio “smart cash” should be finding its way back into undervalued securities.

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George Washington Taxpayer owns 10 acres of land, four miles from the South Carolina coast, just a driver or two from the renowned Kiawah Golf Resort. Recent assessments (even in this dismal housing market) are solid seven figures, and the 25% or so of value mortgage has been overpaid every month for around ten years.

George and Martha have a totally clean credit rating, more than enough visible reported income, plenty of liquid, unencumbered assets, and a second building on their property that is used as an office for their very own, very private, very small business corporation.

The business has been “in the family” for more than thirty years, directly and indirectly employs about twenty other individuals and small businesses, and produces substantial, taxable income. It also pays rent and salaries to the Taxpayers.

George called Notquitesoquick Mortgage, LLC to re-finance his still barely “jumbo” loan — thinking, with a solid credit score, pretty impressive total documented income from all sources, a history of over paying, what could possibly go wrong?

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Adding the phrase “like a girl” to the end of whatever you were saying was a put-down, an insult, something to come to fisticuffs over. Little boys the world over hated being told that they, for example, “threw like a girl.” I’m not defending the statement, I certainly don’t agree with its intent, but hey, that’s been the case from the playground on up.

As far as women are concerned, investing belongs in the same category as childbearing, socializing, fundraising, community organization, and consensual leadership. It’s something that women may approach with trepidation, but the reality is they can be darn good at it.

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Caring for our pets can sometimes stretch budgets, we love our pets and are willing to do anything for them. Yahoo! Finance’s Farnoosh Torabi has rounded up some ways to save money on the care and feeding of our fluffy friends–from buying less food, choosing adoption, and learning some do-it-yourself grooming techniques.

Periodically, the stock markets go through a mid-cap and small-cap excitement. We are in such a stage currently. Over the last one year, the small- and mid-cap indices have outstripped the large cap indices by wide margins. This performance is also reflected in the typical mutual fund as well. The average large-cap focused funds are up while mid and small cap funds are up much more. There’s also no shortage of analysts proclaiming that the smaller companies is where the action is.

However, as always, investors need to be extremely wary of this space. Volatility and liquidity have always scuppered investors’ gains in this space, mostly because by the time the mass of investors notice the action, things are already over the hill. You can make money in these stocks, but you need to be careful.

So let me give you a different perspective on small and mid-cap performance. The Small Cap Index may have risen 200 per cent from the bottom in March 2009, but to reach that bottom, it had fallen to one fifth its value. It takes a lot more than a 200 per cent gain to wipe out that kind of a fall.

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How much financial bloodshed is necessary before we realize that there is no safe and easy shortcut to investment success? When do we learn that most of our mistakes involve our very own greed, fear, and unrealistic expectations?

Eventually, successful investors begin to allocate assets in a goal directed manner by adopting a realistic investment methodology — an ongoing security selection and monitoring process that is guided by realistic expectations, selection rules, and management guidelines.

If you are thinking of trying a strategy for a year or so to see if it works, you’re due for a smack up alongside the head. Viable strategies transcend cycles, not years, and viable equity strategies consider three or four disciplined activities, the first of which is selection.

Most strategies ignore one or more of the others.

How should an investor determine what stocks to buy, and when to buy them? Will Rogers summed it up: “Only buy stocks that go up. If they aren’t going to go up, don’t buy them.” Many have misread this tongue-in-cheek observation and joined the “buy anything that is rising” club. I’ve found that the “buy investment grade value stocks lower” approach works better.

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At least ten hands shoot into the air as the discussion turns to stock selection. The speaker smiles, responds to each, and observes: “You really need to know the depth of the water, its temperature, tides, and currents before you dive into the river — and then, what kind of predators are in there?”

Flying low over coastal South Carolina, I’m probably the only person on the plane who sees the meandering rivers and tidal creeks as a history of stock market cycles. How does one navigate these complex connections without getting lost, running aground, or being attacked by alligators?

How does one select equity securities in a manner that consistently avoids the risks of volatile markets, fickle investors, abusive regulators, regressive tax codes, and brainwashed investment gurus? Along with self-confidence and experience, it takes some management skills that most investors fail to sharpen before they launch their boat — planning, organizing, and controlling.
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If you have recently found yourself needing to make more money, and found a job that seems to pay too much to be true, think twice! Some of the world’s best paying jobs are also the most dangerous, and the risks can easily outweigh the money, and be the cause of hefty income protection insurance premiums!

About a year ago this week, just before the one-year anniversary of this market rally, there were about 45 IGVSs priced 15% or more below their 52-week highs. The market seemed to be entering a corrective phase, but it just never happened.

A year later, the market statistics, all of them, are shouting at the top of their lungs — the correction is coming! The correction is coming!

Portfolio “smart cash” is at pocket-hole-burning levels; less than 3% of all IGVSI stocks are even close to “bargain” prices; new 52-week highs have more than quintupled new lows; and issue breadth has been exceptionally positive.

Those of you who are “in the know” will recognize “smart cash” as the type that is created by targeted profit taking plus dividend and interest income. It reflects an Investment Grade Value Stock Index (IGVSI) that has surpassed its pre-financial crisis record high — in spite of the fact that all the other averages remain below theirs.

Most (equity heavy) Market Cycle Investment Management (MCIM) program portfolios are at all time high profit levels; income heavy allocations have fallen victim to the buying panic of stock market speculators, higher interest rate expectations, and overblown concerns about state and municipal treasuries.

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