Fagan Associates Archive for October, 2009

We all know the guy/gal.  They know more about the most arcane and obscure subjects than everyone else combined. Questions about the Ming Dynasty and extinct animals are their forte. (They even know the correct pronunciation of forte). We are usually wowed by their knowledge and amazed by their lack of common sense. Many of these geniuses are working as market prognosticators.

Yesterday’s Dow close slightly below the 9600 level and better by more than 100 points and this morning’s futures’ advance are both encouraging signs.
The drumbeat of the market as overvalued has heightened and intensified recently. We have noted several times that markets climb a walll of worry and invariably frustrate the most number of people and usually the smartest of those people (we are not making claims in that area) This happens so frequently because the stock market is a forwardlooking mechanism.  There are no hard and fast rules about market direction - it is part science and part artwork.

Subtly, the economy has begun to improve. Durable goods orders have stabilized, housing prices too and remarkably the smartest among us fail to realize that economies need to stop receding BEFORE they can advance.
We remain cautious that this market is vulnerable to a pullback as it is 50% above its March lows but hasten to point out that this market also would need to advance some 40% to close in on last October highs.
Our advice, grab a cider donut and enjoy the fall. Worry if you must- buy a short term bond fund or sell a volatile stock. Keep your asset allocation in tune with your age, risk tolerance and investment objectives. Listen to the smartest people talk about social security reform but not market direction.
Happy Birthday to Dennis Fagan. October 6th!!

We have received a bunch of phone calls lately asking for CD alternatives for VERY risk averse investors. Remember all mutual funds have risk and past performance is no indicator of future results!!
Here was the screen (and these are not the only funds that passed but the ones that we have a comfort level with).
1. No down year since at least 2000
2. Trailing 5 year better than 5%
3. Worst 4 year period above 3.5%
4. No load
We are not saying that these are the best funds NOR are we saying that we would use these funds exclusively. These are consistent perfomers over the past decade though.
1. Payden GNMA (PYGNX)
2. Vanguard GNMA (VFIIX)
3. Pimco Total return (PTTDX)
4. Harbor Bond (HABDX)
5. RidgeWorth Inv Gr Bond (STIGX)
It is intersting to note that Oppenheimer Intl Bond Fund (OIBAX) did not make this list because of a dismal 2008. That fund however has a worst 3 year period of better than 7% (almost double some of these). Consult your financial advisor before investing in these funds –we own shares in 4 of these funds.

Stocks look to open lower as NonFarm Payrolls fell by 263,000 during the month of September helping to push the Unemployment Rate up 0.1% to 9.8% from 9.7%.  The consensus estimate which had become more and more optimistic over the last couple of weeks was for losses of 180,000.

Now that the “panic recovery” in stocks which we define as the last leg down from October 2008 thru early March 2009 appears over, equity investors will need good news on the economic front to push stocks appreciably higher.  Specifically, the labor market needs to improve which will in turn aid the housing market.  This latest jobs report is not a step in the right direction. 

What is an investor to do?  We noted above that the jobs report was “not a step in the right direction” and therefore will not help push stock prices higher.  However, we also believe that stocks will not move substantially lower and, at this time, would look to ADD to positions should they fall another five percent or so.

Regarding Fixed Income, we continue to like Government Agency Bonds, Short-Term Corporates, Municipal Bonds and Preferred Stocks.

Many happy returns of the day as Chris celebrates his birthday and to our parents as they celebrate their 55th Anniversary!