Transcript KEVIN M. WILSON - Blue Water Capital Advisors

Monthly Market Review
“High Risk, Low Reward, And 2012 Investment Ideas
That Fit The Times”
January 19, 2012
Kevin M. Wilson, ChFC, PhD
President/CEO/CIO
1314 E. Superior Street
Suite 2
Duluth, MN 55805
Dheenu Sivalingam, MBA
AVP/CCO/Senior Analyst
Ted A. Pavlovich, WMS
VP Wealth Management
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Office: 218-464-4399
Toll Free: 877-327-5062
Fax: 218-464-4397
Email: [email protected]
www.bluewatercapitaladvisors.com
INTRODUCTION
TED A. PAVLOVICH
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WHAT WE LEARNED IN 2011
KEVIN M. WILSON
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Structural Debt Problems In
Europe Have Not Been Resolved
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The EU Nations Will Also Raise Taxes,
Privatize Assets, Cut Spending, and/or
Devalue The Currency
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Loose Money Hasn’t Fixed Economy,
But Has Helped Banks Recover; Only
De-leveraging Will Work
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Markets Are Macro-Driven Over Intermediate Term
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Technical Analysis Helps With Surviving Volatility,
But Must Be Used On A Large Scale
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TWELVE PREDICTIONS FOR
2012
KEVIN M. WILSON
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President Obama Will Lose
Based On Current Data, Given
Historical Tendencies
Current NFP vs. Trend
Current GDP Forecast
Current DPI vs. Trend
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Euro-zone Debt Crisis Is Hurting The Global Economy
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EU Crisis Will Peak…
…And A Big
Bank Will Fail…
…But Then ECB
Will Print Money
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The Federal Reserve Will Initiate “QE3”
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Recession or Not, The Economy Will Be Sluggish For Years
Banks
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Deflation Will Continue…
…Because De-Leveraging
Will Take Many Years
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Profit Margins Will Mean-Revert…
…Helping Bear Market
To Continue Downward
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Flash crash of 05/2010 Demonstrated ETF
Trading Risk; This Risk Continues
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After Market Correction, Supply & Demand
Problems for Oil Will Continue in 2012
32 BBO/Yr.
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China and India Will Again Put a Strain on
Global Food Supplies Later in 2012
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MACRO-ECONOMIC
CONSTRAINTS ON THE
RISK/REWARD MATRIX IN
1H/2012
KEVIN M. WILSON
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Poor Choices on Risk/Reward
Analyses Have Consequences
2012
2010
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Graphing The Risk/Reward Matrix
German Assets
Chinese Assets
Italian Assets
Greek Assets
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Macro: Real DPI (blue) Falling Rapidly,
Raising Risk to Economy & Markets,
As Real Final Sales (red) Will Follow
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Macro: Trend Is Improving, But Level Of
Retail Sales Is Still Very Low
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Macro: PCI Index Flat-to-Down, Level Is Low
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Macro: Consumer Confidence Improving, But Level Very Low
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Macro: Divergence Between S & P 500 & Treasuries Indicates Pivot Point
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Macro: Italian M3 Money Supply Looks Very Dangerous,
And Perhaps Is Partly Off-Set By Black Market Activity;
However, Similar Examples Include Russia, Greece
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Allocation Levels Informed By Macro Constraints
On The Risk/Reward Matrix (Currently Favors Bonds)
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Long Bear Market Episodes (Bond Rallies)
Are Followed By Huge Stock Rallies
?
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Individual Stocks: Risk/Reward Diagram Useful
Kodak Stock
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SOME WINNING IDEAS FROM
2011 THAT SHOULD WORK
AGAIN IN 2012
TED A. PAVLOVICH
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Buy Dividend Payers?!
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Buy Zeros?!
Buy US $?!
Composition of DXY
Gold??
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Secular Themes: Long Term Consumption Trends
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Changes In Protein Consumption Will Continue
As incomes rise above subsistence levels, high-value food products become more prevalent in diets. Such products
include meat and processed foods like fats, oils, and confectionery products. As shown in the above graph for China,
India, and Brazil, protein consumption has the largest projected growth potential.
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Water Purification Will Be A Big Problem,
Due To Demand For Oil, Gas, and Food
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EUROPEAN AND OTHER
CRISES WILL PROVIDE BIG
INVESTMENT OPPORTUNITIES
DHEENU V. SIVALINGAM
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EUR Weakness is Good for
European Companies
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European equity outperforms 88% of the time when Euro
weakens.
Organization for Economic Co-operation and Development
estimates that, for every 20% drop in the Euro, the Eurozone
will enjoy a 1.6% boost to real economic growth. And
corporate earnings will rise 22%.
If these benefits outweigh proposed austerity measures to cut
spending and raise taxes, we could see quick European equity
outperformance; most likely it will be good for some
countries and not so good for others.
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European equities that generate more than
half of their revenue from outside Europe
will benefit the most.
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Being a Contrarian
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The road ahead won't be easy. Investors must focus on the Eurozone
countries that stand to benefit the most from the Euro's slide.
Like any contrarian countertrend idea, calling the exact bottom of this
downturn is impossible. Moreover, it's likely that a few years down the
road, the PIIGS will end up restructuring their debt anyway, much like
Dubai recently did.
Europe is headed for change, in that either it will emerge from the crisis
with greater fiscal unity, or with a different membership. Either way, the
Eurozone will be different to the one that exists today, something
investors need to understand.
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SCREENING FOR WINNING
STOCKS IN A FLAT MARKET
DHEENU V. SIVALINGAM
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Investing in Flat Market

Be good stock pickers rather than closet index
trackers.
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Look for companies with low expectations. Investors can sometimes
become overly pessimistic about the prospects for a company for many
reasons. But a strong business that has maybe just hit a temporary snag
can generate extraordinary returns, if it is able to right the ship.
Look for companies who have a strong innovating culture, There have
been many technological advances since 1998, but not all of them have
led to profitable growth for firms. The companies that have succeeded at
innovating are the ones that have banked real profits and produced
positive cash flow for their owners.
Look for companies who are in a favorable industry trends. A rising tide
lifts all boats. In other words, some companies have seen strong gains
simply because of the industries they operate in. These companies have
the wind at their backs and don't have to fight tooth-and-nail to steal
market share in order to grow. The pie simply grows larger and everyone
wins.
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Look for companies who have a strong dividend and dividend growth.
Although dividends have historically accounted for close to 40% of the
total return of the stock market, they were not very fashionable in the late
1990's. But in this era of super low interest rates and choppy stock
markets, the dividend stock seems to be making a bit of a comeback. Not
only can you get a higher yield right now on many blue chip stocks than
you could on a 10-year Treasury note, many of these companies
consistently raise their dividends each year. There are strong tax
advantages as well, assuming tax laws don’t change.
Look for companies who have attractive valuations. Fortunately for longterm investors, valuations on the S&P 500 are much more attractive than
they were in 1998. But that doesn't guarantee strong returns for the stock
market over the next decade.
Be disciplined. Don't buy it unless the price is at the level you believe is at
or below the true value of the company. In long periods of a flat or
sideways market, you want the holding of the stock to be worth your
while.
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SUMMARY & CONCLUSIONS
-Risk/Reward Dangerous, But Market Wants To Go Up Near Term
-Economic Data and Earnings Should Cause Doubt Going Forward
-We are Ready For Either Case, But Currently Positioned Against Risk
-If Market Sells Off, Risk/Reward Will Be VG & Huge Opportunity Awaits
KEVIN M. WILSON
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Disclaimer
This report is provided for informational purposes only and does not constitute an offer or solicitation to purchase
or sell any security or commodity and is not intended to provide specific advice or recommendations for any
individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to
investing. Any opinions expressed herein are subject to change at any time without notice. Information has been
obtained from sources believed to be reliable, for its accuracy and interpretation are not guaranteed.
Investing in securities involves risk, including possible loss of principal. Past performance should not be taken as
an indication of guarantee of future performance and no representation, express or implied, is made regarding
future performance.
The firm does not provide tax advice; clients should contact their attorney, accountant, or other tax adviser
regarding tax matters.
Blue Water Capital Advisors, LLC is an SEC registered investment advisor. Not FDIC insured. No bank guarantee.
May lose value. Not a deposit. Not insured by any federal government agency. Blue Water Capital Advisors, LLC
is not affiliated with National Bank of Commerce or NATCOM Bancshares, Inc.
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