By proceeding, I acknowledge that I have read and understood the Disclaimer and Copyright Statements .

Despite the market having it’s best week in two years, the major indexes closed out the month of July mixed. The mixed monthly performance of the indexes has been a microcosm for the year. Large Cap up marginally while Tech is down significantly. Here is how the S&P 500 and the NASDAQ 100 have shaped up:

Index…………………………July………………………………………….YTD
S&P 500:………………..…0.5%………………………………………..3.3%
NASDAQ 100:………..…(3.7%)………………….………………….(8.3%)

My model portfolio continues to hold a slight lead compared to our benchmark Couch Potato Portfolio which is up 1.5% YTD. Your accounts have seen appreciation in the range of 3.5 – 5%. While I haven’t set the world of fire, I’ve provided decent returns in excess of the market averages. As I’ve stated numerous times, now is not the time to be greedy, rather my primary goal is to protect your gains from the last 3 years.

While I maintain that the market will continue to consolidate over the next 12 – 18 months, a couple of stubborn technical indicators are signaling that the market may rally another couple times before we see any significant sell offs (operative word is “may”, the market just as easily may not rally before another sell off occurs). It is improbable that the market will rally above the highs set in May. While a couple indicators are still neutral, far more are signaling a bear market and therefore, I will continue to position your portfolio defensively.

By proceeding, I acknowledge that I have read and understood the Disclaimer and Copyright Statements .

(This is a long one, but well worth it.)

For quite some time, I have argued that the stock market is relatively expensive by historical standards and will therefore experience below average returns for the next decade. Recently, I developed a new and very simplistic means of calculating expected stock market returns in light of valuation. I’ll refer to it as The Bizarro Rule of 72.

I’m assuming that you know of the Rule of 72. If not, it goes like this. If you want know how long it will take for you to achieve a 100% return on your capital given a specific interest rate, simply divide 72 by the interest rate. It’s real easy. Say you have a bond that pays 8%. Divide 72 by 8 and you get 9, therefore, you’ll receive interest equal to your original principal in a span of 9 years. At an interest rate of 12%, it will take you 6 years and so on. For whatever reason, people in my profession love to quote the Rule of 72 but to be honest, I find it mundane.

So, rather than be conventional, I’d like to examine the inverse of the Rule of 72. In honor of Seinfeld, I’ll refer to it as The Bizarro Rule of 72. Rather than starting with an assumed rate of return for stocks to figure out when I’ll get all my money back, I’m going to figure out when I’ll get all my money back to calculate an assumed rate of return for the market. You follow? Read the rest of this entry »

By proceeding, I acknowledge that I have read and understood the Disclaimer and Copyright Statements .
Today, the market saw it’s third consecutive 100 point decline, losing a grand total of 394 points in three days. A lot of the market’s action has been blamed on problems in the Middle East. If I correctly recall my elementary Sunday School class, problems in the middle East date back to the birth of Isaac somewhere around 2000 b.c. This sell-off has very little to do with Israel shooting off a couple of rockets or oil climbing to $77. This sell-off has been caused by a technical breakdown in the stock market, an economic slowdown and a severe drop-off in consumer sentiment. The action in the Middle East may be acting as a catalyst, but that is all. As I have been saying for sometime, the market is due for correction and it appears that the correction is here. Expect more of the same for the next couple of months as the market gets whipsawed back and forth.

For my clients: Despite the S&P losing 2.7% in July, my portfolio is up around 2% for the month. I haven’t recouped all your losses from June, but your account is close to its highs from late May. I was on the wrong side of the action in June, but I have been on the right side in July – but there is no guarantee that I’ll be able to stay there. This market will continue to be ultra-volatile meaning gains and losses will come and go quickly. Overall, I believe your portfolio is positioned to take advantage of the intermediate trends in the market which I covered in my quarterly update.

-Matt