Transcript kevin m. wilson ted a. pavlovich

Monthly Market Review
“How to Play the New Asset Bubbles”
(An Evaluation of Manias)
November 21, 2013
Kevin M. Wilson, PhD
Chairman/CEO
1405 Medical Arts Building
324 W. Superior Street
Duluth, MN 55802
Ted A. Pavlovich, WMS
President/Wealth Mgmt.
Advisor
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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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ANNOUNCEMENTS
KEVIN M. WILSON
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BLOWING BUBBLES:
THE FED’S MYOPIA
KEVIN M. WILSON
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The Nasdaq & Housing Bubbles
Were Created by The Fed
Rates Too Low
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Zero Bound
This Time We Hit The
Zero Bound, So QE
Was Used As Well
QE (Bond Purchases)
Expand Fed’s Balance Sheet
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Fed’s Actions Affected Markets,
But Had Little Impact on Economy
More Debt =
Less GDP Growth
Actual
Results
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Fed Says We Can’t See Bubbles in Advance
Somehow Not A Bubble (2013)
Bubbles (2000,2007)
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NAVIGATING IN A BUBBLY
STOCK MARKET
KEVIN M. WILSON
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Our Checklist For Calling The Top:
1)
2)
3)
4)
5)
Stocks Dropping 20% Exceed Stocks Making 52-Week Highs (NO)
Market Peaks Minimum of 8 Months After First Rate Increase (NO)
IPOs Reach A Maximum On 3-Month Rolling Basis (NO)
Price/Book Ratio Of Spec. Co.’s Much Higher Than For Div. Payers (NO)
Share Turnover Rate On NYSE Is Above 75% Over 3-Months (NO)
Estimated S & P 500 Top May Be As High As 2325
(30% Higher) Or As Low As 1940 (8% Higher)
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Tulip Mania 1636
Speculative Bubbles All Have
The Same Causes (Part 1):
1) Easy Money
2) Explanatory Story
3) Irrational Exuberance
South Sea Land 1720
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1929
Speculative Bubbles All
Have The Same Causes (Part 2):
1) Easy Money
2) Explanatory Story
3) Irrational Exuberance
Nikkei 1989, Nasdaq 2000, Shanghai 2007
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Bubble Psychology Is
Somewhat Predictable
Log Periodic
Bubble Function
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Valuations Peaking?
No One Rings A Bell At
The Top, But You Can See
It Coming Far in Advance
Bear Market Syndrome Triggered
Margin Debt Peaking?
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NAVIGATING IN A BUBBLY
BOND MARKET
TED A. PAVLOVICH
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Bond Yields (Prices)
Set By Three Things:
1) Fed Funds Rates
2) QE Bond Buying
3) Inflation Risk
Rates Held Too Low For Too Long
Inflation
Subdued
But Real
Rates
Rising
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End Of A 30-Yr. Bond Rally With
All-Time Record High Prices (Low Yields)
Record Low Yield For 10-Yr.
Of 1.38% Reached 7/25/12
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Interest Rates Have Not Acted As Predicted By The Fed
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Fed’s Taper of QE May Threaten Bond Market Stability
A Two-Percent Interest Rate Increase
Will Double The Federal Debt Service
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RESOLVING THE INVESTOR’S
DILEMMA
TED A. PAVLOVICH
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1) Costs Of QE And The Taper Caper
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Our Solution Is To Limit Risk;
In Fact, We Would Rather Lose
Half Of Our Clients, Than Lose
Half Of Our Clients’ Money
Tech Bubble’s Collapse Gave Back
5 Years of Gains in Just 2 Years;
However, A Model Allocated According
To Risk/Reward Fluctuations Ended Up
Outperforming By A Wide Margin
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SUMMARY
1)
2)
3)
4)
5)
We’re Probably In An Equity Bubble Phase
The S & P 500 Top May Possibly Be 8-30% Higher
Corrections (Perhaps > 15%)Will Occur Along The Way
The Bond Bubble Has Burst Already, So Handle With Care
All Of The Above Assumes No Major Surprises
KEVIN M. WILSON
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Q&A
KEVIN M. WILSON
TED A. PAVLOVICH
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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.
“BWCA is a state registered investment adviser in all states in which it is required to be registered. All Blue Water Capital
Advisors’ customer assets are held in the customer name with Fidelity Institutional Services, clearing through National
Financial Services (NFS), Member SIPC, a Fidelity Investments Company as Qualified Custodian.”
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