conservative investment

Pacific Wealth Management Market Comment

by Jim Kuntz on January 7, 2014

With the holidays behind us, 2013 will likely go into the books as one of the most extraordinary years in the history of the capital markets.  Despite a tepidly growing U.S. economy and corporate profits increasing by only 3%, the stock market finished up around 30% last year.  Stock market appreciation of this magnitude usually coincides with an economy growing rapidly or on the verge of robust growth.   Unfortunately, this does not appear imminent.  Declining unemployment percentages have been illusory as more jobseekers have quit looking for work, not because they have found it.  The 2013 U.S. economy grew at around 2%, with slight improvement anticipated next year.

Since the banking crisis in 2008-2009, Ben Bernanke and his fellow central bankers around the world have been manipulating their respective bond markets to keep interest rates artificially low.  We believe this “zero interest rate policy” is inherently dysfunctional, in that it temporarily drives investment capital out of safer investments and into riskier investments, like stocks and real estate. As Mr. Bernanke keeps his finger firmly pressed on the United States Mint’s printing presses, buying $85 billion a month and over one trillion a year of government bonds, stock markets around the world have become dependent on this manipulation and inflated at a rapid pace. To put this in perspective, it has taken 237 years for the United States to accumulate a national debt of approximately $17 trillion, while this Fed policy has contributed over $3.2 trillion in just the last five years.

Going into 2013, we expected Bernanke to remove the punch bowl from the party, or at least start to reduce the level of monthly bond buying, before his term expires on the 31st of this month.  In late spring of last year, stock and bond markets experienced a period of volatility when the Fed comments merely suggested such a reduction might occur. However, Bernanke quickly backed away from this stance, and in September he formally announced the economy was not doing well enough to even begin to reduce or “taper” his monthly bond purchases. This was interpreted positively by stock markets, thus showing how dependent stocks have become to what we believe is an inherently unsustainable policy. When free market economies and their financial markets are no longer free to independently determine valuation levels, the process of hitting the reset button can be traumatic and market volatility is likely.  As economic commentator John Mauldin states; “Putting these bond buying policies into practice is easy, almost like squeezing toothpaste.  But unwinding them will be like putting the toothpaste back in the tube.

For these reasons we continue to have concerns stock market valuations remain especially vulnerable to higher than average volatility.  Pacific Wealth Management has kept our investment allocation in traditional stocks lower than normal to protect against this anticipated volatility.  We believe prudent diversification in these dysfunctional times will continue to control portfolio risk and effectively preserve wealth.

The strategic changes made over the last year to our portfolios are designed to increase growth. An array of sophisticated stock, bond and alternative investment additions have been made in markets around the world.  While our research suggests the economy will remain in an extended slow growth trajectory, 2014 is likely to be choppy.

James C. Kuntz, CIMA
Managing Director

Market Comment from Pacific Wealth Management

by Jim Kuntz on March 22, 2013

As 2012 fades into the memory banks, the financial markets of 2013 are beginning the year in a very similar fashion to last year.  Despite estimates for the U.S. economy to grow at a tepid 2% pace, along with a deepening European recession, stock markets around the world are off to a very optimistic start in the new year.

These strong markets are being driven by the “developed world’s” central banks unending policy of money creation.  Essentially, the USA, UK, Switzerland, Europe and Japan are attempting to inflate their economies out of their economic malaise.  Domestically, Ben Bernanke and the U.S. Federal Reserve Bank are printing $85 billion every month and then purchasing that same amount of U.S. Government and Government Agency bonds.  This ongoing effort of financial market manipulation, to keep interest rates low, encourages investment capital to move out of the safety of money markets, treasury bills and C.D.’s and into the riskier investments of stocks and real estate.  Unfortunately, the central bank’s bond-buying-strategy cannot continue indefinitely and must end at some point.  Like an addiction, the longer the market manipulation, the more reliant the financial markets become on it and the more vulnerable these markets are to future volatility.  We do not expect the Federal Reserve Bank to change their levels of bond purchases any time soon, but as the “when to reduce and/or stop the policy” debate continues, the markets are likely to become increasingly nervous. Until our U.S. Congress and President come to a long-term resolution on the budget deficit, the markets will move in fits and starts.

In recent months, we have been shifting more investments into inflation sensitive securities, while reducing our bond holdings.  Pacific Wealth Management believes these extraordinary times continue to make prudent diversification an essential part of our wealth preservation strategy.

Pacific Wealth Management Market Comment

November 20, 2012

The long awaited elections are now behind us and, as we expected, nothing has changed in Washington D.C.  An equally divided American electorate has chosen to maintain the political status quo.  Our government leaders, unfortunately, do not inspire confidence and last week’s “post-election” stock market decline underscored the financial market nervousness regarding our economic prospects, […]

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Happy New Year Market Commentary

January 12, 2012

Happy New Year! With the holidays now behind us, we send our best wishes for a healthy, productive and prosperous 2012!  As expected, 2011 was a roller coaster year for financial markets around the world. The volatility that began over the summer continued through November with stocks finally enjoying a “Santa Claus” rally to finish […]

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Market Commentary

November 28, 2011

With the holidays upon us and 2012 right around the corner we hope you are doing well and able to share this special time of the year with family and friends. The volatility that began over the summer is continuing as stocks around the world remain held hostage to the news of the day coming […]

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