January 2013 Letter

Written by Greg Bowser, CFP® on .

 

Asset Management Services, Inc.

 

4013 East Baker Avenue. ¨ Abingdon, MD 21009 ¨(410) 538-6800

 

Wednesday, January 23, 2013

 

Dear Client:

 

Happy New Year! 2012 was a very nice year for the financial markets and 2013 is off to an equally good start. We would like to thank you for not listening to the economic headlines and trusting our investment system to work.

The positive returns experienced by your portfolios were met with numerous negative economic headwinds. I have compiled a list of some of the major headlines:

  • Remember in the beginning of the year, Europe was in crisis and Greece, Italy and Spain were going to cause the world to collapse. Greeks and Spaniards hit the streets in protest.
  • Then the reality show “Jersey Shore: was cancelled just to be outdone by “Here Comes Honey Boo Boo”. How did we survive that?
  • ]The elections consumed 90% of TV advertisements.
  • The US was accused of killing an Iranian Nuclear Scientist. Iran/US tensions were very serious.
  • Fuel prices hit near historic highs until Obama released strategic reserves.
  • Fighting in Syria develop into a Civil War causing more global uncertainty.
  • In March, stiff penalties were imposed on the New Orleans Saints for trying to hurt their opponents (Shocking).
  • In April, the U.S. Secret Service sex scandal emerged. The agents involved were immediately reassigned to former President Clinton (Just Kidding).
  • The Facebook IPO was a disaster amongst more fraud and incompetence amongst Wall Street participants (Still no arrests).
  • In May, Mayor Bloomberg solved New Your City’s problems by limiting soft drink containers to 16 ounces.
  • In June, the U.S. Supreme Court ruled that ObamaCare is constitutional
  • In August Hurricane Isaac hits the Republican National Convention, a sign of things to come for Mitt Romney.
  • In September, we had the 9/11 attacked in Benghazi, Libya. More global tensions.
  • In October, the major news was Superstorm Sandy which caused a major economic slowdown for most of New Jersey and New York City. Lance Armstrong was stripped of all of his seven Tour De France titles.
  • In November, Obama wins the election, but Congress remains pretty much in grid lock. Marijuana and Gay Marriage had victories. The David Petraeus, director of Central Intelligence Agency, scandal rocked DC.
  • The Fed announced the end of Quantitative Easing 3 and the end of Operation Twist.
  • Violence escalated in the Middle East between Israel and Palestinians.
  • The big news of the year was that Congress teetered on the edge of the fiscal cliff. I guess we actually went over the cliff for one day and then bunged corded back up the cliff. Anyway, we survived the cliff. Then the most tragic story of 2012 was the shootings in Newtown, Connecticut at Sandy Hook Elementary School. Of course, no words can describe how we all felt when we learned of this travesty.

My point behind listing these headlines is that in the end none of them had a lasting effect on the World Markets. They did scare some investors out of the markets and they did effect them short term. But they did not affect the returns for the year. At the end of the year, the only thing that mattered to the stock markets is corporate earnings. Corporations have adapted to the slow growth and economic uncertainties and have produced good corporate earnings. As the famous investor “Peter Lynch” once said, “If you can follow only one bit of data, follow the earnings.” He also said, the key to making money in stocks is not to get scared out of them.” We recently picked up a client; whose advisor had him out of the market in money market accounts and some muni-bond funds. His return for the year was less than 1%. It really makes it tough when you try to time the market and guess wrong. When and how do you get back into the market? Our approach emphasizes a long term globally diversified portfolio that periodically is rebalanced. This strategy has served our clients well.

We do believe the future will be very difficult for the Fixed Income/Bond Markets since interest rates are at historical lows. During this low interest rate environment, we are recommending fixed index annuities and guaranteed contracts in place of most of the bond allocations. We will be discussing this approach more in our future correspondence.

Let’s all hope 2013 is a great year for everyone. Please call to schedule a review of your finances, especially if there has been a change to your financial picture. Thank you for allowing us the opportunity to service your financial affairs.

 

Sincerely,

 

Gregory K. Bowser, CFP®