 | |||||||||||||||||||||||||
| |||||||||||||||||||||||||
 | |||||||||||||||||||||||||
 A headline in The Telegraph today: "Hedge funds hammered in one of worst years on record." As many of you know we at PivotPoint Advisors fancy ourselves as a type of hedge fund for normal people. Hedge funds try to protect your capital without giving up the ability to make a good return. If the market is down 50%, their objective isn't to only be down 45% and brag about 5% outperformance. They don't ever want to lose money even if the market is having another horrific year. The kicker though, is even with the focus of not losing money, they desire is to never limit the potential upside return. CD's guarantee you won't lose money but they also limit your upside return. Unfortunately you need to have over a million dollars if you want to invest in one. We have this same objective, but our minimums (or lack thereof) suit the common investor. I wrote a white paper earlier in the year comparing the hedge fund investment objective with that of the mutual fund's asset allocation and diversification. if interested you can find a copy of that paper here. The article in The Telegraph goes on to say "the Hedge fund managers have been hammered by volatile markets that have more often been dictated by political calls in the eurozone than company fundamentals." We all have seen the volatility in the market this year. It has given more false signals than an airline has late flights (humor inserted here). It has been very difficult keeping positive account values while the market does nothing but tell us lies. The good news is that even through one of the most difficult years in the history of hedge funds, we've managed to protect the capital in our accounts from large draw downs while keeping volatility to a minimum. I've said numerous times that a time will come when it is much easier to make money. We want to have our accounts intact when that opportunity arises. Our Moderately Aggressive model vs the S&P 500 index is below updated through Dec. 19th. 
I remember as we neared the end of 1999. The market was the highest it had ever been, y2k was coming which we never experienced before and we were entering a new decade. The beginning of the prior 4 decades were recessionary. Even though many were piling money into tech stocks due to the huge returns that year, we began moving to safety. Hindsight being perfect, 2000 nd 2001 were very difficult years. 2012 gives me the same feeling as 2000 did. We will see if my feelings come true.
I hope you all had a very Merry Christmas and wish you a Happy New Year!
Have a great day!!
John Norquay CEO PivotPoint Advisors |
 |  | |||||||||||||||||||||||
Tuesday, December 27, 2011
The Year In Review
Monday, December 19, 2011
If Hindsight Is Perfect . . .
| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
 Since the market took the 20% drop in Late July and early August this year, it has pretty much stayed range bound. Every time we get signs it wants to begin a new direction, those signs soon break down and we must adjust. This is exactly what we have been experiencing these last couple weeks. The market moved up hard off a bottom, took a break and acted like it wanted to begin a new longer leg up. Unfortunately it turned out to be false and moved back down. Although this can be frustrating to money managers like ourselves, we've been through it so many times before that we know to simply get back on the sidelines and be patient. These sideways markets always work themselves out and choose their ultimate direction. Our job is to have all our assets intact when that occurs. If hindsight is perfect, then the volatiliy indicator for the S&P 500 index (the VIX) may be hinting as to what is going to happen next. Without boring you with charts, the VIX, over the last two years or so, has been very good at telling us which direction may be next for the market. Don't take this as the Gospel, but according to the VIX (NOT VIXen, Santa's reindeer) the market will be choosing down as its next longer term move. If I were going to refute this piece of market evidence, I would look for positive signs within our economy that are strong enough to overshadow. In reality, at this point, I would be looking for something in Europe's economy to refute the VIX evidence. Unfortunately I can't find anything on either side of the ocean that would be a strong enough positive. Everyone has been looking for a Santa rally over the last week or so. It hasn't happened. The only thing that has happened is indecision at all cycle time frames. When price patterns form triangles, it indicates indecision in the market. Take a peek in the Briefing Room and you will quickly see triangles in all three cyles at the top of the page. In fact, since I'm not writing this briefing until Monday afternoon, I have the convenience of looking backward. the 1.2% beating the S&P is taking today shows me that at least the shorter term cycles have decidedly turned negative. I mentioned a week or two ago that some of the countries in Europe were going to try borrowing money and chances were they wouldn't be successful. Success being defined as borrowing at a cost that was affordable. As it turns out, they were highly unsuccessful. This is a sign to me that the deal put together is not much of a deal afterall. The action of the market is substantiating my thoughts. I'm happy we are out of this market for the time being. If something changes we will be sure to let you know. If I don't see you or talk to you between now and Christmas, then Merry Christmas to you and yours. May God bless you with a happy new year.
Have a great day!!
John Norquay CEO PivotPoint Advisors |
| | |||||||||||||||||||||||
Tuesday, December 13, 2011
on
When Things Fall Apart
Today I am posting a guest article from Charles Hugh Smith. Charles is a sought after financial columnist whose works are published in most of the major publications. I am on the same wave-length as him with the current market, so I thought I would share his thoughts.
The global "shadow" banking system is unraveling, with dire consequences for financial assets and failed policies.
As I type, the morning injection of hopium crack into the market's veins is already wearing off. We are still in the desperation stage, as central bank manipulators and Central State apparatchiks are rushing around in a panicky search for some new supply of "sugar" intervention to prop up what has been unsustainable since 2007.
The manipulations have one ironic accomplishment: the resulting crash will be larger and more chaotic than the one in 2008 because the faith that State/central bank interventions are limitless magic will have been irrevocably lost.
The big meetings in Europe last Thursday and Friday had one major outcome. Germany won. This means that there won't be any big money being printed by the European Central Bank and that the countries that are in trouble are just going to have to suck it up, learn from their mistakes and get stronger. In other words, we will see some major vomiting with the flu bug that comes from the major amounts of tightening that will have to occur.
Boy do I feel like a pessimist!! But like I always say, the good news is. . . I don't have to be right!!
We're not used to things falling apart, and so our first reaction is disorientation. What we've been trained to expect by constant intervention in supposedly "open" markets is that Central States and central banks will "save the day" with a new intervention: an interest rate cut, a new round of money-printing, emergency loans, new bailout funds, the list has been almost endless since the initial evidence of the Great Unraveling appeared in 2007.
So when official interventions are announced to great fanfare and then fail to goose the market, we're disoriented. John Hussman neatly summarized the insanity of a market propped up only by constant official manipulation: We represent the Lollipop Guild:
Frankly, I am concerned that Wall Street is becoming little more than a glorified crack house. Day after day, the sole focus of Wall Street is on more sugar, stronger sugar, Big Bazookas of sugar, unlimited sugar, and anything that will get somebody to deliver the sugar faster. This is like offering a lollipop to quiet down a 2-year old throwing a tantrum, and expecting that the result will be fewer tantrums.What we have increasingly observed over the past decade is nothing but the gradual destruction of the ability of the financial markets to allocate capital for the benefit of future growth. By preventing the natural discipline of the markets to impose losses on poor stewards of capital, and to impose interest rates high enough to force debtors to allocate the capital usefully, the world's policy makers are increasingly wrecking the prospects for long-term economic growth.
The problem with depending on intervention "sugar" for sustenance is that the market slowly loses its sensitivity to the mechanisms of control (insulin), and at some point the sugar no longer generates a response. We are very close to that point now, as the expected "grand EU treaty agreement" is duly issued as expected and global markets are holding their breath, hoping that some new intervention will keep the teetering financial system from falling over the edge.
This is desperation. In market after market, participants don't really have any faith in the future resilience of the fundamentals which supposedly underpin global markets; rather, they are desperately hoping the next intervention will work better than the last one. But like insulin insensitivity, the market is on a one-way slide: every intervention works its magic for a shorter period of time, and markets respond with increasing torpor to the "fix."
The next phase is chaos, as participants finally grasp that interventions will no longer save them. Then the mad rush to the exits (selling) will begin, and many will be trampled, as the bid will disappear across entire spectra of assets.
We should recall that nothing fundamental has changed since 2007. Here are two fundamentals of many which haven't changed at all: wealth is still concentrated:
and the global financial system is still overleveraged and over-indebted, meaning that every decline in asset valuation triggers a "reverse wealth effect."
and the global financial system is still overleveraged and over-indebted, meaning that every decline in asset valuation triggers a "reverse wealth effect."The manipulations have one ironic accomplishment: the resulting crash will be larger and more chaotic than the one in 2008 because the faith that State/central bank interventions are limitless magic will have been irrevocably lost.
Boy do I feel like a pessimist!! But like I always say, the good news is. . . I don't have to be right!!
Monday, December 5, 2011
False Bravado?
France and Germany in yet another meeting
We have had one heck of an uptick in the market this last week. The market gapped up on both Monday and Wednesday and again this morning (Monday). I had mentioned last week that we may expect a bounce after all the selling that went on the two prior weeks, but expected nothing to THIS magnitude.
I'm sure most of you have heard that the major central banks of the world got together and provided "Easy Dollars" for cash strapped Europe. Why would OUR Fed help bailout Europe you may ask? Well, MarketWatch financial reporter Jon Markman reported last week "There were persistent rumors that a major French bank was on the verge of going bankrupt and that common financial transactions were on the verge of a total halt."
Remember back in 2008 when Bear Stearns and Lehman went out of business while at the same time Freddie and Fannie were taken over by the Gov't (and just a few weeks ago MF Global went BK)? All these banks / financial firms (as well as others who were bailed out) were leveraged 45+ to 1. What does that mean? Basically that for each dollar they had as an asset - such as a savings account, checking account, loan, etc, - they had borrowed $45 to make other investments. When you owe $45 for every $1 you have on the books, if ANYTHING goes wrong with the $45 investment, it sends your $1 into turmoil. This is the current scenario with the major banks in Europe. They invested a lot of their $45 into loans to countries like Greece, Italy, Spain and Portugal. And anyone who can read knows those investments aren't going so well.
Anyone know what mark to market means? You might say who cares, but it is huge. If you bought a stock for $45 per share and it is only worth $20 per share today, would you want to know about it? There are a lot of people who stopped opening their 401k statements in the last recession who might say NO, but savvy investors want to know. Mark to market means to report the current value of an investment on a daily basis. The loans for these European countries are still on the books for the full $45 even though they might only be worth half. Since they don't have to mark to market - report today's true value - they can run around with their head in the sand until someone forces their hand. These easy dollar loans allow them to keep their head in the sand for another day or two - like giving a junkie a fix instead of sending him to rehab.
Europe can't get institutional investors to lend them money, so they are trying to get it from our Federal Banks. The institutional investors remember 2008 and how even money market funds were frozen. They want to avoid living that again. The European Cental Bank won't print money because of Germany, but that won't stop ours from printing.
Gaps: Gaps can occur when something unusual happens in the market. The gaps I'm referring to occur over night. If the market closes at $1,000 and opens the next morning at $1,100, there is a $100 gap. You can't buy in the morning at $1,000 or $1,025 or $1,050. If you want to buy it must be at the gapped up price of $1,100. There is a saying in technical analysis that gaps are always filled back in. When a gap occurs to the upside, if you are patient and hold on, the price will come back to pre-gap levels.
This last week, we had such artificial steroids added to the markets, they did nothing but go straight up without allowing any low risk entries. The first gap hit its head on resistance and the second gap went through the ceiling and to unsustainable highs for the short term. The big question? Will these market steroids build a foundation to a sustainable recovery or will they wear off quickly and find ourselves filling the gaps on the way back to the lows of a week ago? Time will tell, but headlines this afternoon said that the S&P has put the major european countries on watch that they could be downgraded based upon results of meetings this week. France could lose two notches which would be a disaster.
Europe is still moving our market tremendously giving our markets volatility beyond belief. Visit the briefing room to see how we are viewing the current market movements and what we are doing about it.
Those of you who are lucky enough to watch Badger and Packer football heard during both games how they were similar to heavy weight bouts. Maybe this is a new Fox sports term, but one I would quickly add to watching the bulls and the bears. This is one heavy weight bout that is exciting to watch. One of these days, the bull or bear will win and it will become much easier to make money.
Monday, November 28, 2011
Its Beginning To Look A lot Like . . . 2008
MF Global accepting client deposits
Last week was the worst Thanksgiving week the market has had since 1932. What am I thankful for? We didn't participate in it. In fact, as Don points out in the briefing, the last 9 market days have brought an 8.5% drudging to the markets. We participated in none of it.
I've written about the events going on in Europe weekly for the last few months. It seems something big is happening in the news every week over there. This last week was no different. There is such a stigma regarding Europe in the investment community that Germany, one of the only responsible adults in the entire European community couldn't even borrow the amount of money they wanted this last week (read bond offering). Belgium, one of the only other responsible adults just got their debt downgraded by S&P.
Europe is a hot potato that no one wants to touch. This next week, the rest of the sinister family is going to see if THEY can borrow enough money to pay their bills. The more reluctant investors are to lend them money, the higher the interest rate will be. The higher the interest rates, the lower our stock markets will go. Have I spoken about dominos before? A very interesting week is lining up on the heels of a very interesting weak.
I can't help but use this opportunity to plug technical analysis. As many of you know, wall street says the only way you can invest is to buy and hold. Asset allocate and diversify. Bend over, grab your butt and hope for the best. If that were truly the case, our portfolios would have experienced much larger losses from their highs than the 2 to 5% we've experienced while the S&P 500 gave up 20%. Our models are currently about 15% above the market since February.Rodrigo Campos of Reuters said in an article this week that euro zone crisis is causing stocks to be sold regardless of the underlying company's strength. This is one of our underlying tenets of technical analysis vs. asset allocation or individual stock selection. When the market goes down, it takes everything with it.
As we have mentioned so many times, technical analysis isn't about always being right. Its about being wrong just a little when you are wrong and letting your winnings run when you are right. We know there isn't a perfect investment approach out there, but actively managing the one you have does wonders.
Normally you will see a bounce up after record breaking downs. We will see how that plays out this next week with so many European countries trying to borrow money. Don't expect market volatility to decrease yet.
Please visit the Briefing Room to get that warm feeling that goes with the Holidays and the knowledge your money is being looked after on a daily basis.
Monday, November 21, 2011
U.S. Stocks Decline Sharply
Don't Get Caught In THIS Interview!
The headlines this morning for the market "Stocks Open Sharply Lower" in and of itself is a good reason why you should read this weeks briefing room. Don explains why we are not participating in this market. This morning's large losses in the market shows that our outlook on the situation is correct.
It appears in the Euro Zone's infinite wisdom putting their big deal together, that they missed some unexpected consequences. Many institutional investors are ditching the bonds (loans) of Euro Zone Countries, which is making it more expensive for these Countries to borrow. This is akin to your credit rating dropping like a rock, so when your loan comes due at the bank and you must refinance it, the interest rates go through the roof. The only thing keeping Italy and Spain interest rates below 7% is the European Central Bank's buying up the slack as best they can. This is like having your dad be the president of the bank, but soon he must report to the board (the market).
We will continue to watch these developments as they create major amounts of volatility for our markets. You can rest assured we are doing everything in our power to insulate you from the negative developments that will only continue and probably get worse.
The bright side? These sharp downturns always create nice upturns. It doesn't take too many of these upturns to make for a nice annual return.
I've updated the chart for our Moderately Aggressive and Moderate Models. I also included the risk and reward tables. Our value, spoken in terms of return compared to the S&P 500 is about 12% for each. You can see by viewing the charts that the ride is a little smoother for the moderate model. Both actually have positive returns while the S&P 500 is down 12.84% from its high (Current Draw Down). This has been accomplished with substantially less volatility than the index.
It appears in the Euro Zone's infinite wisdom putting their big deal together, that they missed some unexpected consequences. Many institutional investors are ditching the bonds (loans) of Euro Zone Countries, which is making it more expensive for these Countries to borrow. This is akin to your credit rating dropping like a rock, so when your loan comes due at the bank and you must refinance it, the interest rates go through the roof. The only thing keeping Italy and Spain interest rates below 7% is the European Central Bank's buying up the slack as best they can. This is like having your dad be the president of the bank, but soon he must report to the board (the market).
We will continue to watch these developments as they create major amounts of volatility for our markets. You can rest assured we are doing everything in our power to insulate you from the negative developments that will only continue and probably get worse.
The bright side? These sharp downturns always create nice upturns. It doesn't take too many of these upturns to make for a nice annual return.
I've updated the chart for our Moderately Aggressive and Moderate Models. I also included the risk and reward tables. Our value, spoken in terms of return compared to the S&P 500 is about 12% for each. You can see by viewing the charts that the ride is a little smoother for the moderate model. Both actually have positive returns while the S&P 500 is down 12.84% from its high (Current Draw Down). This has been accomplished with substantially less volatility than the index.
Monday, November 14, 2011
Now THAT'S Italian!
| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
 I mentioned last week that we didn't have much going on within our economy so the reporters could focus on Europe, and that they did. Italy has risen to the forefront and caused our market much volatility this last week. They have a lot of their debt coming due this next year and since they don't have the money to pay it off as it matures, they need to borrow more to make the payments. Unfortunately, their credit isn't very good anymore and the credit card company (the market) is increasing their rates. It is said that if their rate gets to 7% then they will go broke. It hit 7% this last week. They say Italy is too large to save, rather than too large to fail. The reason Italy's debt is only at 7% is because the European Central Bank is the one lending them money (maybe because the actual market doesn't want the default risk?). What some say was a draft of the actual letter, Standard and Poors released (accidentally) a notice that France was being downgraded from AAA status. If (when) this occurs for real, then the bailout fund for Europe is worth no more than the paper it is written on (since it is only IOU's in the first place). More comes to surface regarding the Greek bailout. As it turns out, the banks voluntarily (under coercion) forgave 50% of Greece's debt to them. At the same time, the International Monetary Fund, European Central Bank and others who forced the bank's hand, didn't forgive ANY debt that Greece owed THEM. This means that the public is being told Greece can now afford their new package, when in all reality their total debt only decreased by 20 or 30 percent rather than 50. Some well informed people believe 90% will need to be forgiven before Greece can grow their way out of their mess. Ireland's banks went bust and their people were stuck with the bill. They just paid the European's $1 Billion dollars of interest and aren't happy about it. It isn't fair they got stuck holding the hot potato and are looking to toss it at their first chance. They know their chances are coming as other Countries begin to fail. The way out of this mess? Either years of recession and depression in most of Europe as they rebalance all this debt OR talk the European Central Bank into printing more money. The ECB is in Germany and so far has absolutely denied they would EVER do this. This situation reminds me of when we left the gold standard. We first made a rule that we would only print X amount of dollars compared to the value of our gold reserves. Then when we needed more than that, we changed the rule. This happened 4 times before we simply took away any rules as to how much we could print. Look where it has gotten us today. I have quite a busy week, so I'm going to end this here. This week could be interesting as Italy has found a new leader. So far, the market is pointing downward to begin the week as it digests this news and the news that Germany absolutely won't allow countries to issue joint government bonds (similar to printing money). Please read the briefing this week. It breaks down the technical aspects of the market as Europe throws us to and fro.
Have a great day!!
John Norquay CEO PivotPoint Advisors |
| | |||||||||||||||||||||||
Monday, November 7, 2011
The Only Thing That's Guaranteed? . . . Change.
| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
| |||||||||||||||||||||||||
When we are fed up with the status quo, we elect public officials who promise change. Does the change they are promising ever get here? I'll leave that up to you to decide. We at PivotPoint, however, are giving a few of you some un-promised change. Fortunately, it is change that is designed to help. Up until now, we have managed accounts utilizing 4 different risk profiles, Aggressive, Moderately Aggressive, Moderate and Moderately Conservative (A, MA, M and MC). To date, since we haven't gone through multiple long term cycles, the A's and MA's return and volatility are very similar as are the M and MC's. Also, a vast majority of those who have completed Risk Profiles have been rendered into the MA or M models. In order to save administrative time and expense, we are going to combine the A's into the MA's and the MC's into the M's. If you are an A or an MC and have any questions regarding this, please let me know and I will work through this with you. We thank you in advance for understanding our desire for efficiency in making this change. The Economy Many of you may wonder why I have spent so much time writing about Europe recently. The reason is because it is effecting the volatility and direction of our markets. In fact as I was writing this update last Monday, the U.S. was experiencing its first casualty due to the European financial debacle. MF Global isn't a household name like Bank of America, but it is very well known to investors. Its bankruptcy is the fifth largest from a public financial firm in the history of the U.S. after the likes of Lehman and Countrywide. MF Global was run by the ex chief of Goldman Sachs who then became A Senator for New Jersey and then New Jersey's Governator. He was an insider to Wall Street, bet on European Countries as investments, and took the MF Global ship down. This on the heels of Dexia, the largest lender in the world to municipalities, failed. Are these two dominos, like Bear Stearns and Lehman in 2008? Only time will tell. This morning Italy is in the news. It seems the cost of their debt is skyrocketing beyond what they can pay. They weren't expected to be a problem so quickly. For goodness sakes, Greece isn't even solved yet. Remember I wrote a few weeks back that once they begin to make deals EVERYONE will want a deal? There isn't much on the financial docket this week due to earnings season winding down, so the news will be paying plenty of attention to the details of the Euro Big Deal. Anyone with a human side to them will want to read Don's last blog posts. When a huge company like MF Global goes down, it wreaks havoc on millions of families. Most news stories only cover the effect it has on Wall Street. Few readers hear about how a reckless few leaders can cause devastation to literally millions. Some of those can be your best friends. In this weeks briefing, Don speaks about our last investment sequence and his thoughts on what may be the next. You will enjoy the new layout and appreciate knowing his thoughts. 
Have a great day!!
John Norquay CEO PivotPoint Advisors |
| | |||||||||||||||||||||||
