Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday May 28th the S&P 500 closed @ 1089, and that was...
  
   +0.4% ABOVE its 12-Month moving average which stood @ 1085.
   -1.4% BELOW its 40-Week moving average which stood @ 1105.
   -5.8% BELOW its 10-Week moving average which stood @ 1156.


Therefore, the INTERMEDIATE-Term trend IS BEARISH and the LONG-Term trend is NOW NEUTRAL.

Chart of The Day - S&P 500 Earnings Soar +700% from Q1 2009

Chart & Analysis Courtesy of ChartOfTheDay.com

With first-quarter earnings basically in the books (99% of S&P 500 companies have reported for Q1 2010), today's chart provides some long-term perspective to the current earnings environment by focusing on 12-month, as reported S&P 500 earnings.

Today's chart illustrates how earnings declined over -92% from its Q3 2007 peak to Q1 2009 low -- the largest decline on record (the data goes back to 1936).

Since its Q1 2009 low, S&P 500 earnings have surged (up over 700%) and currently come in at a level that has only been exceeded during the latter years of the dot-com and credit bubbles.

1 in 7 U.S. Homeowners Paying Late Or In Foreclosure

NEW YORK, May 19 (Reuters) - One in every 7 U.S. households with a mortgage ended the first quarter behind on payments or in foreclosure, although a peak in unemployment could mean repayment stress is easing, according to the Mortgage Bankers Association.

While the rate of new foreclosure actions has slowed, the stockpile of loans that are seriously delinquent or in foreclosure means a long path to recovery for the U.S. housing market.

"It's like shutting off the oil leak, but you still have a lot of oil in the Gulf to deal with," Jay Brinkmann, the MBA's chief economist, said in an interview.

Loans that are 90 days or more past due or in foreclosure represent a historically high 68% of all problem mortgages.

High unemployment is overwhelming efforts by lenders to alter loan terms to borrowers.

Quote of The Day: Courtesy of John Galt & Ayn Rand

"When you see that trading is done, not by consent, but by compulsion - when you see that in order to produce, you need to obtain permission from men who produce nothing - when you see money flowing to those who deal, not in goods, but in favors - when you see that men get richer by graft and pull than by work - you may know that your society is doomed."


- John Galt, Atlas Shrugged

Retirement Planning in America: The Lastest Stats...

57% - Percentage of Americans who say they are behind in planning for retirement.

36% - Percentage of Americans who say they are only “a little behind” in their retirement plans; 21% say they are “far behind.”

56% - Percentage of Americans who say they have NO income left for savings after meeting regular expenses.

56% - Percentage of Americans who say they started saving too late in life.

Source: TD Ameritrade

Scary Math - Depressing Housing, Unemployment and Business Stats

SCARY MATH

by David Rosenberg - Gluskin Sheff

1 in every 10 American homeowners missed a mortgage payment in Q1 (a record)  1 in 6 Americans are either unemployed or underemployed. 4 in 10 unemployed Americans have been out of work for at least 6 months. 1 in 4 Americans with a mortgage have negative equity in their homes. 1 in 10 Americans believe their income will rise in the next 6 months. 1 in 5 Americans see business conditions improving in the next 6 months. 1 in 50 Americans plan to buy a home in the next 6 months. 1 in 8 Americans believe that current government policy is actually helping the economy. 1 in 10 American small businesses have a job opening. 1 in 10 American’s credit card usage is being written off (a record). There are 5 unemployed workers competing for every job opening (hence downward pressure on wage growth). Outside of these, it’s all good.  Lagged impact of gargantuan fiscal stimulus (the longevity of which is now being challenged with Greece the proverbial canary in the coal mine) and inventory-led production gains (the longevity of which is now being challenged by the fact that real final sales since the recession technically ended is running at a pace that is two-thirds weaker than what is “normal” coming out of a “downturn”).

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday May 21st the S&P 500 closed @ 1088, and that was...
  
   +0.2% ABOVE its 12-Month moving average which stood @ 1085.
   -1.5% BELOW its 40-Week moving average which stood @ 1104.
   -6.5% BELOW its 10-Week moving average which stood @ 1163.


Therefore, the INTERMEDIATE-Term trend IS BEARISH and the LONG-Term trend is NOW NEUTRAL.

Quote of The Day: Ayn Rand - The First Moral Society in History? The USA...

The most profoundly revolutionary achievement of the United States of America was the subordination of society to moral law.

The principle of man’s individual rights represented the extension of morality into the social system—as a limitation on the power of the state, as man’s protection against the brute force of the collective, as the subordination of might to right. The United States was the first moral society in history.

All previous systems had regarded man as a sacrificial means to the ends of others, and society as an end in itself.

The United States regarded man as an end in himself, and society as a means to the peaceful, orderly, voluntary coexistence of individuals. 

All previous systems had held that man’s life belongs to society, that society can dispose of him in any way it pleases, and that any freedom he enjoys is his only by favor, by the permission of society, which may be revoked at any time. 

The United States held that man’s life is his by right (which means: by moral principle and by his nature), that a right is the property of an individual, that society as such has no rights, and that the only moral purpose of a government is the protection of individual rights.

Ayn Rand - “Man’s Rights,” The Virtue of Selfishness

The Latest from Mohammed El-Erian of PIMCO on the New Normal Global Economy

We are living through a remarkable time of change for the global economy, where several anchoring parameters have become variables.

It is a time of friction, collisions and renewal as we journey to a de-levered and re-regulated world with weaker growth dynamics in industrial countries and less political enthusiasm for unfettered globalization and markets.

This brings us back to the image of a car that, having used its spare tire(s), is still embarked on a bumpy road through unfamiliar territory and to a less-than-stable destination. Parts of the car are up for this journey; others will likely hold up but in a tentative and fragile manner; and yet others will fail.

For investors, this translates into a secular period of changing risks and opportunities:

It is a world where several of the old simplifying adages that once brought comfort to investors – such as industrial country governments constitute interest rate risk while emerging economies involve credit risk – require considerable refinement;

It is a world that calls for a broader investment universe and guidelines and, for those who use them, revamped benchmarks that better capture the world of today and tomorrow rather than that of yesterday;

It is a world of significant country, regional and instrument differentiation when it comes to harvesting equity and credit premiums in high-quality corporates, financials and emerging markets;

It is a world where the currencies of the emerging (as opposed to submerging) economies will continue to warrant a greater allocation over time; and

It is a world where the safest of carry will come from duration and curve in sovereigns that, due to their economic and financial fundamentals, are truly core countries in the midst of this global paradigm shift.

Look for PIMCO to continue to work hard on your behalf to combine all this with cyclical considerations and to translate them into the appropriate positioning of your portfolios, consistent with your return objectives and risk tolerance.

Look for us to provide you with the information, expertise and investment solutions that capture the evolution of both the journey and the destination.

And look for us to continue to position our business so that we can provide you sustained value in this changing historical context.

Mohammed El-Erian of PIMCO

http://advisorperspectives.com/commentaries/pimco_051310.php

U.S. Government Debt Nears Overwhelming Threshold

In the book, This Time is Different, writers Ken Rogoff and Carmen Reinhart documented that governments debt begins to erase long-term growth once it goes beyond 90% of Gross Domestic Product (GDP).

Their research shows that the average growth performance of developed economies drops by around -1.75% per year when debt breaches that threshold.

As you can see in the chart below, overall U.S. government debt now stands at 93% of projected 2010 GDP.

And that doesn’t even take into account the massive guarantees by government-owned Fannie Mae and Freddie Mac.

The International Monetary Fund (IMF) projects the ratio of debt to GDP to surpass 100% by 2014.

This does not bode well for prosperity in America.

Survey Identifies Gender Differences in Retirement Savings

More men than women are worried about outliving retirement savings, in spite of women's longer life expectency.

42% - Percentage of men who are worried about outliving savings, compared to only 37% of women.

61% - Percentage of women who are behind in retirement savings say raising children is the reason, compared with 43% of men.

47% - Percentage of women who say postponing retirement in order to supplement Social Security is their greatest concern, compared with 35% of men.

10% - Percentage of women who say they suffer “extreme stress” when managing retirement savings, compared with just 4% of men.

38% - Percentage of men who say health care expenses are a top retirement concern; the same percentage of women agree.

Source: TD Ameritrade

The Housing Market Still Has The Blues

There are some strong negatives overwhelming the housing market...

1. Intermittently increasing interest rates

2. Bank repossessions surpass 1 million homes in 2010.

3. More than a 25% of borrowers are "underwater," meaning they owe more than their homes are worth.

4. "Strategic defaults" close to 31% of all foreclosures in March -- where "underwater"  home owners walk away even when they can still afford to pay.

And the scary truth: Right now, there could be more than 4.5 million homes that are ready to be sold but not on the market, also called “shadow inventory," according to a recent report by Barclays Capital.

This so-called "shadow inventory" is a recent phenomenon.

In the past, inventory was either tight or it wasn't. But now, with home prices so low and so many foreclosures on the market, both homeowners and banks have been waiting to put properties on the market. But as more sellers put their homes up for sale, supplies increase, which will depress prices again.

Rinse and repeat ad infinitum.

That vicious cycle could cause prices to bounce up and down for years, low or no appreciation and more homeowners in negative equity.

Quote of The Day: High Tax Rates & Prosperity

"Higher tax rates don't produce prosperity or balanced budgets—as we can see in New Jersey and New York, or Greece and Portugal."

~ WSJ Editorial

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday May 14th the S&P 500 closed @ 1136, and that was...
  
   +3.9% ABOVE its 12-Month moving average which stood @ 1093.
   +3.1% ABOVE its 40-Week moving average which stood @ 1102.
   -2.9% BELOW its 10-Week moving average which stood @ 1169.


Therefore, the INTERMEDIATE-Term trend IS NEUTRAL to Moderately BEARISH BUT the LONG-Term trend is BULLISH.

7 Conservative Funds for Seniors

The following list of balanced funds comes to us by way of SmartMoney.com.

The website analyzed data from Morningstar to find funds that were in the top 25% of their category in the last 3- and 5-year time periods.

Balanced funds haven’t been star performers of late; SmartMoney writes that the category is down -0.36%, while the S&P 500 is up +0.22%.

The funds on the list, though, are up +2.7%.

Among SmartMoney’s criteria for the list, these funds are open to new money, and the minimum investment is less than $5,000. Additionally, the annual expense ratio is under 1.5%.

1. Berywn Income
2. Hussman Strategic Total Return
3. James Balanced: Golden Rainbow
4. Mairs & Power Balanced
5. Permanent Portfolio
6. T. Rowe Price Capital Appreciation
7. Vanguard Wellesley Income

Quote of The Year: The Champions of Socialism...

"The Champions of Socialism call themselves progressives, but they recommend a system which is characterized by rigid observance of routine and by a resistance to every kind of improvement.

They call themselves liberals, but they are intent upon abolishing liberty.

They call themselves democrats, but they yearn for dictatorship.

They call themselves revolutionaries, but they want to make the government omnipotent.

They promise the blessings of the Garden of Eden, but they plan to transform the world into a gigantic post office. Every man but a subordinate clerk in a bureau. What an alluring utopia! What a noble cause to fight!

Against all this frenzy of agitation there is but one weapon available: Reason. Just common sense is needed to prevent man from falling prey to illusory fantasies and empty catchwords."

From "Bureaucracy" by Ludwig von Mises (1944)

Who Are The Best Candidates For Roth IRA Conversions?

People with the largest IRAs are probably the best candidates for a conversion.

If they have the money to cover the initial tax implications — and they don’t need the money for a long time — that makes them an ideal candidate.

Not so much age. Someone in their 70’s or 80’s isn’t converting for himself because the life expectancy [on the Roth distribution] isn’t worth it.

It’s a great way to transfer wealth, especially if the client doesn’t need the money. High-income clients who didn’t qualify for this before are looking for this kind of thing.

Ed Slott, CPA

Will A Roth IRA Conversion Lower Estate Taxes?

Conversion won't lower estate taxes per se (although the fact that you prepaid the government taxes will make your estate value marginally lower), but it will lower the amount of ordinary income taxes beneficiaries would have to pay.

For example, if you have a $1 million regular IRA inheritance with no cost basis, the beneficiaries will owe income taxes on the entire $1 million.

If you converted to a Roth and paid $380,000 or so to do so out of taxable assets, the beneficiaries wouldn't owe income taxes on the $1 million, but of course the taxable assets used to pay for the conversion (which would have received a stepped up basis) would reduce the value of the other taxable assets they would have received.

It depends on the tax rates of beneficiaries, if they can use averaging to spread out the tax bite, etc.

David Loeper

Wall Street Panic Attacks - A Historical Perspective & What To Expect

1. Panic attacks similar to last week's have occurred, for whatever reason, a number of times in the past.

2. Here are some of the historical panic attack dates that are similar to the meltdown the occurred on Black Thursday, May 6, 2010:

May 29, 1962, January 8, 1986, September 11, 1986, October 19, 1987, October 13, 1989, March 8, 1996, October 27, 1997, August 31, 1998, February 27, 2007, etc.

3. After the shock day, typically there were 1 to 3 days of additional selling pressure.

4. After an intitial low is put in, there was usually a vicious 2 to 5 day rally.

5. Everytime, after that initial rally failed, the market retested the panic low.

6. The intraday range of the intial shock day usually contained the price action for the next 1 to 3 months. Any probe above or below the shock-day range was beaten back quickly.

7. All of these panic attacks marked fairly major intermediate-term market bottoms.

8. So if history is any guide, expect the market to move sideways for a few months and ultimately break out of the trading range to the upside.

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday, May 7 the S&P 500 closed @ 1111, and that was...
  
   +2.0% ABOVE its 12-Month moving average which stood @ 1089.
   +1.2% ABOVE its 40-Week moving average which stood @ 1098.
   -5.0% BELOW its 10-Week moving average which stood @ 1169.


Therefore, the INTERMEDIATE-Term trend is NOW BEARISH, BUT the LONG-Term trend is BULLISH.

Status of Our Vantage Point Investment Models

THREE of our Vantage Point Models have changed since last week.

Our Intermediate-Term Stock Model, our SmallCap Momentum Model and our High-Yield Bond Model all turned NEGATIVE on Friday, May 7. All THREE of these Models turned POSITIVE in February 2010, but are now NEGATIVE.

As of the close on Friday, May 7, the status of our Vantage Point Models is as follows:

Our Intermediate-Term Stock Model is NEGATIVE as of May 7, 2010.
Our SmallCap Momentum Model is NEGATIVE as of May 7, 2010.

Our Treasury Bond Model is NEGATIVE as of February 20, 2009.
Our High-Yield Bond Model is NEGATIVE as of May 7, 2010.

In our relative strength work, we favor:

• SmallCap funds over LargeCap funds         (since 12/18/09)
• Value funds over Growth funds                 (since 02/19/10)
• U.S. funds over Foreign funds                   (since 11/27/09)
• SmallCap Value over LargeCap Growth     (since 12/18/09)

Retirees Need 15.7 Times Final Pay To Meet Expenses

15.7x – The amount an average U.S. worker will need to multiply their final pay by in order to maintain their current standard of living.

4.4x – The amount an average U.S. worker will need to multiply their final pay by in order to maintain their current standard of living if they work until age 67.

4.7x – Social Security is expected to provide 4.7 times a worker’s final pay.

18% - Percentage of workers who are on track to meet retirement goals.

Source: Hewitt Associates

Baby Boomers in No Rush for Social Security Benefits

20% - Percentage of boomers who say they plan to apply for benefits as early as age 62.

25% - Approximate percentage of boomers who say they won’t apply for benefits until later than they initially thought they would.

69% - Percentage of boomers who have not changed their retirement plans.

6% - Percentage of boomers who say they’re applying for Social Security earlier than they thought.

Source: MetLife Mature Market Institute

Is Washington Bankrupting America?

Status of Our Vantage Point Investment Models

NONE of our Vantage Point Models have changed since last week.

As of the close on Friday, April 30th, the status of our Vantage Point Models is as follows:

Our Intermediate-Term Stock Model is POSITIVE as of February 19, 2010.
Our SmallCap Momentum Model is POSITIVE as of February 19, 2010.

Our Treasury Bond Model is NEGATIVE as of February 20, 2009.
Our High-Yield Bond Model is POSITIVE as of February 26, 2010.

In our relative strength work, we favor:

• SmallCap funds over LargeCap funds         (since 12/18/09)
• Value funds over Growth funds                 (since 02/19/10)
• U.S. funds over Foreign funds                   (since 11/27/09)
• SmallCap Value over LargeCap Growth     (since 12/18/09)

Trend Update: Monthly Trend Analysis | Dow Jones World Index

Chart courtesy of StockCharts.com

One of my most reliable primary market trend indicators remains BULLISH.

Understanding the relationship between the 12-month (long-term) moving average and the 3-month (intermediate-term) moving average is essential to correctly determine the character of the market’s prevailing trend.

When the 3-month is above the 12-month, a BULL market is in force.

When the 3-month is below the 12-month, a BEAR market is in force.

At this time the  3-month moving averages of all the major indices are above their respective 12-month moving averages.

In my opinion, it’s vital to keep a watchful eye the Dow Jones World Index ($DJW) because it gives us a reliable perspective on the health of the global economy, which is becoming increasingly vital to the prosperity of the U.S. economy.

The 3-month average of the Dow Jones World Index has remained above the 12-month average in a bull-market relationship since a August 31, 2009, when the $DJW closed at 208. Since then the World Index is up +13.0%.

On Friday, April 30, the $DJW closed at 235.

(The chart shows just the 3-month and 12-month moving averages of the Dow Jones World Index, not the prices of the index itself.)

Until the 3-month (229) falls below the 12-month (217), we will, by definition, remain in a bull market. The 3-month was
 -5.2% below the 12-month at the end of April.

As long as this relationships persist, market rewards will outweigh the risks; capital appreciation will take precedence over capital preservation, and we’ll maintain a defensive posture.

Vantage Point UPDATE: Intermediate-Term and Long-Term Trend Analysis

On Friday April 30th the S&P 500 closed @ 1187, and that was...
  
   +9.3% ABOVE its 12-Month moving average which stood @ 1085.
   +8.4% ABOVE its 40-Week moving average which stood @ 1095.
   +1.5% ABOVE its 10-Week moving average which stood @ 1169.


Therefore, the INTERMEDIATE-Term trend IS BULLISH and the LONG-Term trend is BULLISH.