Spring 2010 Update
May 20th, 2010
Dear Clients,
RE: Spring 2010 Update
Soon you will receive your 1st quarter 2010 position performance report. For comparison, here is what the major markets have done:
| Index1 | 4th Quarter 2009 | 1st Quarter 2010 |
| Dow Jones Industrial Total Return | 6.01% | 13.00% |
| Barclays Aggregate Bond2 | .20% | .22% |
| NASDAQ Composite | 7.17% | 11.80% |
| S&P 500 Composite Total Return | 6.04% | 9.08% |
| Morgan Stanley EAFE | 1.80% | 4.95% |
But the biggest action of the year happened a few days ago.
Thursday, May 6th was a remarkable day, with the Dow Jones Industrial Average dropping over 1000 points in matter of minutes and rallying dramatically to finish down 348 points, according to Daily Graphs, a subsidiary of William O’Neil and Company. While the Securities and Exchange Commission investigates, speculation continues. One report suggests a person hit a key to sell a billion shares of Proctor and Gamble, instead of a million. The drop happened around 3:00 PM and happened to coincide with massive mob rioting in Greece, the election in the U. K. turning to Cameron’s favor over Brown with a hung Parliament, and oil spewing out into the Gulf of Mexico.
As of the date of this letter, here’s how things stand now as it relates to actual trades that have taken place. Below is the comment from the National Securities Exchange (www.nsx.com)3 which is consistent across all market centers:
Clearly Erroneous Ruling Pursuant to Rule 11.19(g), NSX, on its own motion, in conjunction with other UTP Exchanges has determined to cancel all trades executed between 14:40:00 and 15:00:00 ET that increased more than 60% or decreased more than 60% away from the consolidated last print in that security at 14:40:00 ET or immediately prior. This decision cannot be appealed. NSX will be canceling trades on the participant’s behalf. Any questions may be directed to the NSX Client Services Desk at 1-800-THE-EXCH (843-3924) or NSXTrading@nsx.com.
Mary Schapiro, head of the Securities and Exchange Commission, had this to say to a congressional panel on Tuesday, May 11th:
“The sudden evaporation of meaningful prices for many exchange-listed stocks in the middle of a trading day is unacceptable and clearly contrary to the vital policy objective of maintaining fair and orderly financial markets. This event directly impacted the many that trade in the interval and undermined confidence in the integrity of the financial markets.”4
I, for one, look at this as just another news event we have to deal with in the business of managing your money. It did indeed mark a major reversal in the markets, long speculated by many that we have gone up too far too fast. We are now at a point where the markets may send a major sell signal. But contrary to that bearish outlook, looking at it from a short term (10 week) perspective, many stocks are oversold by 10-20% in my opinion.
But it wasn’t all that long ago that we had similar price moves. In October 2008 there were days where we had wide price swings, with the Dow down 700 points in the morning and up 600 points in the afternoon to close down about 100 points on the day. The difference now is that we have quantifiable risk indicators to help us point the way.
We are poised to raise cash if the selling gets much worse or to buy if we get major reversals on the upside, but I don’t think that will happen soon. Our domestic positions are primary in the technology, basic materials, and consumer discretionary sectors of the market. Our international areas are primarily in Australia, Malaysia, and Turkey, but we are not adding any cash or new money to international securities. We are looking for favorable risk/reward tradeoffs across all asset classes – bonds, domestic equities, international equities, commodities, and currencies, but are not finding a lot of promising candidates right now.5
On the personal front, I just completed a trip to the zoo with Cameron, Jr., Colin, and Kaitlyn (my 9, 6, and 3-yr old children). I’m proud to display a colorful photograph of all of our faces painted in my office. Please drop by to take a look sometime – I’m the green dragon!
Thank you for your business and support. Please don’t hesitate to call with any questions or comments you may have. Have a good spring!
Sincerely,
C. Cameron Bell, MAS, CFP
Executive Director
P.S.: Moreover, we are pleased to announce that we have finally found a way for you to stop receiving statements and confirmations in the mail! This was, by far, an often heard request. You can also export transactions and other data into programs like Microsoft Excel or Quicken. If you would like to go “green”, please don’t hesitate to call Gene in the office and he or Ashlie will walk you through the process.
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Indexes are unmanaged and an investor cannot directly invest into an index. Past performance is no assurance of future results. Presented in percentage change.
This information was obtained in Morningstar Workstation Office Addition, on April 16th 2010.
2 The Barclays Aggregate Bond Index is comprised of a variety of taxable bonds, and is used as a measure, or benchmark, of the US bond market.
3 The hyperlink in this newsletter is provided as a convenience and is for informational purposes only and is not part of FSC Securities Corporation, and is not endorsed or accepts any responsibility for the content or use of the web site. FSC Securities Corporation does not guarantee the sequence, accuracy or completeness of the data or other information appearing on the linked pages. The company assumes no liability for any inaccuracies, errors or omissions in or from any data or other information provided on the pages, or for any actions taken in reliance on any such data or information.
4 The Hill’s Finance & Economy Blog. May 18th 2010.
5 International investing involves special risks not present with U.S. investments due to factors such as increased volatility, currency fluctuation, and differences in auditing and other financial standards. These risks can be accentuated in emerging markets. The price of commodities, such as gold and currency, is subject to substantial price fluctuations of short periods of time and may be affected by unpredictable international monetary and political policies. The market for commodities and currency is widely unregulated and concentrated investing may lead to higher price volatility. In general, bond market is volatile, bond prices rise when interest rates fall and vice versa. This effect is usually pronounced for longer-term securities. Any fixed income security sold or redeemed prior to maturity may be subject to a substantial gain or loss. Municipal bond offerings are subject to availability and change in price. If sold prior to maturity, municipal bonds may be subject to market and interest rate risk. Depending upon the municipal bond offered; alternative minimum tax and state/local taxes may apply. The investor should note that lower-rated debt securities (commonly referred to as junk bonds) involve additional risks because of the lower credit quality of the securities in the portfolio. The investor should be aware of the possible higher level of volatility, and increased risk of default.
The views expressed are not necessarily the opinion of FSC Securities Corporation, and should not be construed directly or indirectly, as an offer to buy or sell any securities mentioned herein. Investing is subject to risks including loss of principal invested. No strategy can assure a profit nor protect against loss. Indexes cannot be invested in directly, are unmanaged and do not incur management fees, costs or expenses.
