Fagan Associates Commentary

Good Morning and welcome to the first day after the end of tax season!  More about that later.  However, first and foremost, let us keep the victims of the bombings in Boston in our thoughts and prayers as the powers that be seek justice for the perpetrators of this violence against the innocent.

Regarding the impact on the stock market, at this time and given what we know we believe that it will be minimal and brief and therefore will respond accordingly by looking to put money to work on weakness.  The fixed income market will most likely stay within a trading range, buoyed by relative strength in the U.S. Economy as compared to our major trading partners.

Now, now is the time to plan for next April’s tax filing season.  Fund your IRA.  Fund your 401(k).  Look for charities to donate to.

The market as measured by the Dow Jones is at an all-time high and the stock market as measured by the S&P 500 is a stone’s throw from an all-time high. The calls for a significant correction are echoing from one underperforming hedge fund manager to the next. This staggering 4 year run HAS to end. It has to end soon and end badly. We say WHY?
Yes, the stock market has had a huge 4 year move higher but essentially the S&P 500 is at the same levels that we saw 13 years ago despite improving earnings and balance sheets for the majority of S&P 500 companies. There is no reason that the market HAS to pull back here.
The track record of consensus investment adviser opinion isn’t sterling. Interest rates had nowhere to go but up in 2009. The fiscal cliff, then the sequester were the ends of the market advance. Gold was destined for$3,000 an ounce. Heck the Mayan calendar offered calamity to stock investors.
Our point is that there are no hard and fast rules for this market (for any market for that matter). We see the market digesting these gains over the short haul but then eventually moving even higher. Far be it from us however, to assume that we are right. Hence, we stay diversified and invested in quality mutual funds, stocks and bonds.

This will get us in a bit of trouble with the insurance companies and brokerage firms and banks that imply investors should retire with tens of millions of dollars AND that investors sole focus through their working life should be saving and investing money.
We say no way.
By now you have heard the line that no one on their deathbed ever wished that they had worked more during the course of their lifetime. They wished they had spent more time with family, or travelling or just enjoying life.
Similarly, we have had encounters recently with older investors with diverse, extensive portfolios but no ability to enjoy what the money might mean to a younger investor. Possibly they no longer had the partner with which to enjoy life. Possibly physical ailments prohibited travel or other recreational activites. Or quite possibly they had missed the opportunity to help a family member through a time of financial need.
Money/investments should be a means to an end. A secure retirement, a child educated or perhaps a vacation home purchased. We are seeing many investors with large portfolios and no interest in enjoying the fruits of their labors (or having others enjoy those fruits)
Our thought and we apolgize for the life philosophy is spend a moment and enjoy life along the way and if that involves spending a dollar or two then so be it.
Like in life, investing and spending need to be balanced out Too much of one or the other is unhealthy.

Good morning and Happy 20th Birthday to the Exchange Traded Fund (ETF) industry which twenty years ago today launched its first ETF, the SPDR S&P 500 (SPY) which also is the the most successful ETF ever launched trading more than 135,000,000 shares daily thereby helping provide depth in liquidity to the equity markets.  SPY seeks to replicate the performance (before expenses) of the S&P 500 which is the largest 500 companies domiciled in the United States.  Today there are dozens of ETFs with a multitude of broad as well as narrow objectives.  The main benefit of an ETF is that unlike an open-ended mutual fund it trades hands during the day in real-time.  At Fagan Associates we utilize many different ETFs and find them very valuable for diversification and asset allocation.

Regarding the current state of the financial markets — stocks have run quite a ways over the past couple of months and a breather would be welcome.  That said, we believe that it would be just that — a breather — with only a shallow pullback.  Regarding the fixed income markets, we continue to believe that interest rates will continue to drift slowly higher pushed bond prices slowly lower.

We usually “JUMP” into the New Year with the Polar Bear Plunge into Lake George on New Year’s Day. It’s a Fagan tradition initiated by our brother Mike who continued it yesterday without either Dennis or I. The Polar Bear plunge is a mad dash into freezing waters and then a mad dash out to christen the New Year with bravo and some macho form of redemption.
2013 enters with a fiscal cliff resolution that leaves us wanting more BUT almost happily accepting less. The market will enter 2013 on a very high note with futures pointing to a 200+ higher Dow opening- we feel some caution is in order.
The economy is stable, corporations are liquid and performing well BUT we are still roadblocked nationally by a government (and not just for the past 4 years) that spends too much. The deal is better for the market in the sense that cap gains’ increases were less than anticipated and the threshold for higher taxes higher than thought. This is GOOD for today’s market.
We still face the fight of the debt ceiling and spending cuts. Given Congress’ penchant for dragging things out and inability to compromise, we can’t help but believe we will stand at the edge of new cliffs in the coming months.
We continue to stay allocated and believe that stocks are investors’ best chance for gains over the coming years. But we ALSO believe that investors may endure some frigid waters in the coming months despite today’s whirlwind start.
Stay invested- stay positive but with the realization that the fiscal deal was just a beginning.

Good morning and Happy New Year!  As the front tires of our “fiscal cliff” car approach the edge, our elected officials are working feverishly in an effort to craft some sort of deal to prevent this from occurring.  We have thought that some deal would be reached by calendar year-end, but at this point in time it looks like even money.  However, the deal, should it come to pass, would most likely be watered down to such an extent that the markets would probably respond with a bit of an upturn and a fade.  Perhaps the best outcome for the U.S. Economy and therefore our population and the financial markets would be to tumble over the cliff and strike a meaningful deal which includes tax, entitlement and spending reforms rather than strike a bad deal to beat the calendar year deadline.

We have taken what we believe are the appropriate steps to deal with any potential outcome as we continue to believe that this is a political rather than an economic event and should the markets pull back and a sensible deal be reached, such a pullback would be a buying opportunity.

Once again, best wishes for a Happy, Healthy, Prosperous 2013!

Good morning.  Yesterday the Federal Reserve took two steps to help support this fledgling and fragile recovery by announcing that it will continue to purchase mortgage-backed securities to the tune of $40 billion per month and will also begin to buy longer-dated U.S. Treasuries at a rate of $45 billion per month with the latter replacing Operation Twist where the Fed was buying shorter-dated Treasuries rather than longer-dated ones.

Our take — the Fed continues to pull out all of the stops as it waits for Congress and the Obama Administration to do their jobs.  That said, their efforts will be in vain without substantial reform coming from Washington.  Time will tell.  We’re hopeful.

In closing, we agree with JP Morgan CEO Jamie Dimon who noted during an interview that “we are one decision away from restoring our fiscal and moral authority around the world.  Let’s just do it.”

As individuals, we always tend to focus on our last encounter and that has the most influence on our perception. The last good movie that we saw is our favorite and the last impression that we have of our sports teams stays with us (Yankee fans will spend the winter lamenting their HORRIBLE season when in reality it was a good season that ended horribly).
Yesterday’s 300+ point decline in the Dow left investors cursing the stock market (and rightly so) for how bad it has been. In reality, 2012 has been a solid year for stock investors with the S&P 500, ( even with yesterday’s decline) still better by some 12%. So, 2012 has been a good year that just had a bad day.
As a nation, we face some significant challenges. As stock/bond investors we face some significant challenges as well as an upcoming period of uncertainty and waiting for action.
We believe it is wise in both life and investing to act in moderation. Fine tune your investment portfolio in light of the election and the pending fiscal upheaval but don’t overhaul the entire engine.
We look back to last August when Europe was in chaos and the US markets were wilting under that news. The markets have rallied dramatically since then despite a consensus last August that scared even the heartiest of stock investors.
Stay diversified- stay calm, stay vigilant and don’t overreact because we believe more market turmoil and volaility is inevitable.

The narrow victory (both electorally and via the popular vote) by President Obama outlines the difficulty in determining the best course for our SHARED future.  Voters have spoken and have voted for more of the same — more Quantitative Easing, policy as usual with the Federal Reserve and short-term stimulus.

We will stay vigilant regarding the accounts of our clients hoping and expecting that our political leaders will begin to work at and compromise to solve our long-term fiscal problems, namely the Fiscal Cliff, entitlement programs and the schism that has begun to form between our classes.

President Obama should experience a honeymoon period.  Both parties must come out of their respective corners after a hard fought election and provide a sensible, cohesive and mutually agreed upon framework to deal with the above referenced problems.  With silly season over, let the work begin.

Stocks will most likely be in a holding pattern as the catalyst for a move sharply higher or lower will surprisingly, NOT be a result of the upcoming Presidential Election, but how effectively the incoming President can deal with the looming fiscal cliff. Stocks will most likely be stuck in a trading range as bullish investors cite the potential for a positive resolution to this problem and bearish investors cite the recent history of our elected officials to move too slow and too late on these matters, matters which have lasting repercussions.

We continue to recommend a balanced, long-term approach as we believe that the United States (Treasury, Congress, the Presidential Administration and Federal Reserve) will ultimately have to print (see inflate) its way out of this problem.  This bodes well for risk assets such as stocks.  However, over the short-term, see the first paragraph.