Healthcare
Healthcare: Japan?
Low
Mortgage Rates
Refinance
Rail Car Loadings
Buy and Hold
or Trading
Hold your Winners
Investment Outlook
Healthcare
Last
week on the MaxOut Savings Show we discussed my belief that there is a strong chance a healthcare bill will pass and be signed
by the President (I keep hoping that I am wrong on this). If something is going happen on healthcare, it
should pass this week. This is a worrisome development for the investment markets. We
believe that the markets will react negatively to passage of the healthcare bill. The investment markets
have had a tremendous rally off the low in March of 2009. This tells us that an economic recovery is priced
into the market. Over the next couple of months we should see more hiring and better job numbers as a result
of some uptick in corporate hiring and a large amount of hiring for the 2010 Census. What is not priced
in the stock market is the passing of the Democratic healthcare plan. If the healthcare bill passes, Congress
and the Administration could become emboldened by their success and move on to a form of Cap and Trade, union card check,
immigration, regulation on the energy business, and higher taxes across the board.
In the 1990s, Japan was in a situation much like we are now. The Japanese economy started
to recover from their property bubble and their government began to raise taxes and reduce the deficit as the recovery began.
The Japanese economy quickly slipped back into a recession that has taken over ten years to get out of with deflationary
slow growth. The Federal Reserve has extensively studied the Japanese bubble and this is why they will
put off raising rates as long as possible to prevent a double dip recession here in the United States as happened in Japan.
Will Healthcare “Japan” the United States?
We
believe if the Democratic healthcare bill is passed there is a good possibility that it will trigger a double dip or, at minimum,
result in much slower growth in the economy later this year. Instead of debt reduction and tax rate hikes
in Japan that caused the double dip, it could be the healthcare bill here in the US. The reason this could
happen to our economy is that research has shown that a weak economy is much more susceptible to an economic shock such as
an oil price jump, terrorism, tax hikes or possibly the healthcare bill, than a growing economy. The healthcare
bill will add to the reluctance by small companies to hire workers at the worse possible time, just when the economy is starting
to recover. The healthcare plan will also slow hiring for years to come as small businesses hold off hiring
workers. We could see an economy that has 8% plus unemployment for years to come. In
addition the healthcare bill will require tax hikes.
We believe
the passage of this healthcare bill will have a negative impact on the investment markets that could develop into the “healthcare”
stock market correction. The problem with the passage of this healthcare bill is that it will embolden
the left wing of the Democratic Party in Congress and strengthen their attitude, which appears to be ‘if we are ever
going to get our agenda done, now is the time’. We would be very cautious in the investment markets
given the run-up over the late twelve months and sudden hard shift to the left for our government.
Low Mortgage Rates
Home
mortgage rates are at the lowest rates in over forty years as can be seen in the long term chart of mortgage rates below.
The rates have fallen as the result of the collapse of the debt bubble. It is interesting to note
that as recently as the year 2000; mortgage rates were above 8.5%!
Long Term 30- Year Mortgage Rates (St
Louis Federal Reserve) 
Now is the Time
to Refinance
One of the reasons these record low rates have
remained at this level as the economy has stabilized and begun a muted recovery is that the Federal Reserve has been buying
home mortgages to stabilize the home mortgage market and keep rates low. The Fed has stated that they intend
to cut back on this buying by the end of the first quarter. In effect, this has been a mortgage loan subsidy
for the American people that will be coming to an end. Some analysts are projecting thirty-year mortgage
rates moving 0.25-0.5% higher over the next couple of months as the Federal Reserve winds down its mortgage buying program.
We are now projected to have budget deficits of over one trillion dollars over the next couple of years.
This much federal borrowing will drive interest rates higher over the next couple of years. The
bottom line is that mortgage rates are at record lows and now is a good time to refinance your home or make a purchase if
you can get a great deal on a home. If you need help with your mortgage let us know and we will refer
you to a home loan expert.
Rail Car Loadings Increase
We have recently seen an uptick
in the economy as hiring has picked up to a slight degree along with retail sales. Another positive statistic
is that rail car loadings have begun to pick up from a four-month decline; as can be seen from the chart of US rail car loadings
below, railcar loadings are moving higher in 2010.. Even now, rail car loads are off almost 20% from the
2006-2008 time frame. This gives us an idea of the breadth of this economic slowdown throughout the economy.
Overall, the increase in rail car loadings is a positive for the US
economy that should be watched closely. 
Source: calculatedriskblog.com
Buy and Hold or Trading?
Investment
portfolio turnover is rarely correlated with investment returns; more trading does not mean higher returns. In
fact, research has shown it to be inversely correlated to investment returns. A study by professors Odean
of UC Berkley and Barber of UC Davis found that buy and hold investors with a portfolio turnover of 0.75
times had a 17.4% return during a five year period in the 1990s. While more trader investment types
with a portfolio turnover of 2.5 times had a return of 11.4%. To put it another way, more patient
buy and hold investors had over 50% better returns than traders. It should be noted that the buy
and hold investors still had turnovers of 0.75, but they were just more patient. Interestingly enough,
they found that over confidence was one of the main reasons for excessive trading!
Portfolio Management:
Do you have a system?
I have often been surprised by the lack of basic portfolio management skills most
people possess. In investing there are subtle skills that make all the difference between winning and losing,
key among those are discipline and patience. Casual observers of investing seem to believe that the required
skill is to pick the “hot stock” or sector or to time the next advance or decline in the stock market.
It is instead important to build a quality portfolio of stocks or mutual funds for the long term. Here
is a simple portfolio management exercise that is one of my favorites to help you along. Which of these
two portfolio strategies works better the Sell the Winners Strategy First or the Sell the Losers First?
Sell
winners or losers first?
You start out and invest in 10 stocks for your portfolio and let’s assume you have a 50% chance you will pick
a winner. We will use a hypothetical one year time frame. We then sell the winners or
losers and reinvest for a second year. Your results from the two scenarios are shown below.
1. Sell the winners and capture the gain.
Winners Losers
Year 1
5
5 After 1 year we sell the winners and reinvest
After 2 years 2.5
7.5 2.
Sell the losers and take a loss.
Year 1 5
5
After 2 years
7.5
2.5
Using
the ‘sell the winners’ strategy, you’d have 2.5 stocks at a profit and 7.5 stocks at a loss after two years.
Now let’s look at the ‘sell the losers’ strategy. After one year we will sell
the losers and reinvest. After two years, the ‘sell the losers’ strategy generates 7.5 winners
and 2.5 losers. Strategy #2, the ‘sell the losers first’ strategy is the clear winner.
The lesson of this exercise is to let your winners run and sell the losers if they do not work out. We
find that many investors hold on to losers too long and sell their winners too quickly. Set a target price,
whether it is long or short term. Cut your losses. Let your winners run!
Professors Barber and Odean found a clear tendency to
sell the winners and keep the loser in their report “Courage of Misguided Convictions”. Some
of the reasons they came up with as to the cause was belief that the loser will bounce back, tax changes, limited commission
costs, belief all stocks revert to their means, and the desire to rebalance. Yearend tax selling was the
main driver that forced investors to take losses. Their paper states one of the main reasons people do
not like top sell losses is called the Disposition Effect, investors want to avoid the regret of a bad investment decision.
Investment Outlook
At the present time, we would be very cautious of the
investment markets. It remains to be seen the effect of healthcare on the investment markets if it
passes sometime this week. We believe that passage of the healthcare bill could have a very negative
effect on the stock markets. We continue to favor large cap, blue chip stocks that pay good dividends.
We would have a higher weighting of value over growth at this stage of the market. We believe that large
cap will outperform small cap stocks over the next couple of months. Our work suggests that many small
cap companies are overvalued at the present time. They do not have the overseas exposure and diversified
businesses to weather any slowdown in the economy. We would avoid China’s stock market as we have stated in recent reports
that China has a huge problem with a real estate bubble. We are also becoming concerned United States’
trade relations with China are heading south rapidly. On the positive side, this should result in the Chinese
currency, the Yuan, being revalued higher against the US dollar. We would pay attention to cash levels
in accounts in anticipation of a correction if healthcare passes.
Do you have an account at Fidelity?
Do you already have an account at Fidelity Investments? Why not let
the MaxOut Savings Advisors Team actively manage the assets for you at Fidelity? We will make the investment
decisions and you can sit back and relax. We use the same value based investment strategies we talk about
on the MaxOut Savings Show. In most cases you can sign a simple form and we can use your same Fidelity
account to get you started.
Considering an IRA Rollover?
If you are retiring soon or considering an IRA rollover, let the MaxOut Savings Advisors Team handle your IRA rollover.
We can help you take advantage of the NUA tax break if you have low cost basis stock in your company plan.
We will sit down with you and go over your financial situation and needs and come up with a plan. We
will show you how we manage accounts using our value analysis strategy to grow your investments and reduce risk.
MaxOut Savings Advisors: Actively Managing
Risk
In these volatile times, investing your retirement funds can be difficult and time consuming. Is
your advisor looking at risk and actively managing your retirement? Hiring the MaxOut Savings Advisors team to manage your
money or IRA rollover is a great first step toward a successful retirement. MaxOut Savings Advisors, LLC
is an SEC registered, fee-only investment advisor based in Houston, Texas.
Ted Geoca has over twenty year’s of investment experience managing clients’ retirement assets.
We invest in stocks, bonds and mutual funds for our clients using a value analysis strategy that we have developed
over the last twenty years. We look at risk as well as return to actively manage your investments
through today’s changing markets. We use Fidelity Investments as the custodian for our clients’
assets. If you would like MaxOut Savings Advisors to manage your retirement investments using our value
methodology, I would be happy to meet with you. To schedule an appointment please give us a call at 713-627-0400
or email me at ted@maxoutsavings.com.
Remember Save Aggressively and Invest Conservatively!
Ted K Geoca
Doug Saam Kellan
Caldwell
President
MaxOut Savings Advisors, LLC
Houston,
Texas
ted@maxoutsavings.com
713-627-0400
Remember to catch:
The MaxOut
Savings Show with Ted Geoca on Saturday at 11:00am on KNTH 1070AM!
The MaxOut Savings Show and Report does not give out financial advice.
Any recommendation may not be suitable
for all investors. Moreover, although information contained herein is believed to be reliable, its accuracy
cannot be guaranteed. MaxOut Savings Advisors, LLC may or may not have positions mentioned herein. MaxOut
Savings is a Registered Investment Advisor registered with the SEC. You should always make investment decisions based on your
own financial situation.
To sign up a friend for our free MaxOut Savings Report
or to remove your name off the MaxOut Savings Report list, email ted@maxoutsavings.com.
|
