Apr 9, 2013|
"Smart investing, simplified"
Transcript - Not for consumer use. Robot overlords only. Will not be accurate.
Had a good Sunday afternoon do and welcome to the -- confidential full. For my wish everybody could see illustrate how -- we were doing the dance it's great. Two old guys try to stay out the guys you should and it's a pretty sad that the real phone but Jack you get a -- a key moments like Moscow could -- -- Clinton looked up up up and you know because of all -- is president of Gladstone investment management. I'm Dan Garber Indian contestant is -- strong financial forum. On another Sunday that is not snowing it seems like now that you know what how we've broken this cycle we do we millionaires but that -- certainly was a long gold went oh my goodness as. Used him as a matter affect affect its spring is here and -- -- the weather is changing the whole idea of April is one of the things we -- talking about today do look back -- -- the first quarter of a 2013 exactly right look at that a lot of stuff but I going on today a lot of news. On this -- -- posted as Paul goes on we talk about what is happening in the economy what Paul expects will be happening. You may have some questions so -- is shut down Paul's number you -- McCall. At any time during the week and just ask him say all you mentioned such as the program how does that affect me your might that affect me up. Paul -- have the answer you on the phone or email and also of course if you like whenever free portfolio review would be happy do that is well his number toll free one ADB. 9727526. That's 1888972. Plan as promised so here we are we're right in the middle of April and is now we can look back at first quarter of 2013 am mortal will call me. Well what I wanna first quarter I mean really when you think about it -- you know some of the statistics are are are really something for example let's just talk about which markets did the best. The standard poor's 500 in Q1 made almost 11% -- Now I gotta tell you that exceeded most full year very -- prognostications. Of the quote unquote experts and so we hit that the first quarter S&P 500 was up almost 11%. But the smaller stocks the Russell 2000. Were up all more than that you're up 12%. Arm and argued bar on the other hand the on the developed. Our international markets were not up as much they were up about sick about 5% part -- so what's called the EAFE index which is. Europe Europe Asia and the Far East and on that and those are primarily to develop markets hosting you know think Japan think Europe developed Europe and so forth and those were -- only 5% to about half as much as the US. But here's where it gets really interest thing. The core bonds were down point 1% in total return so what that means is. If you're if not a typical of bond in the aggregate bond index has say a coupon of three or 4%. And the overall. Total return for the quarter was down point 1% that means. That you lost three or 4% in value in you or or or or the face value of your account. Not in bonds if you were in the aggregate bond and -- in Q1 and that is the first time in quite some time that that's happened. Now on the of course for fans of his radio program all of whom I have followed this from the offense side over here WW RT you know. These two things that we've been talking about for awhile constantly the first thing -- -- mentioned now for a couple of years now first quarters of years have been up and up over the last several years it's over -- I'm so impressed you remember how well the anywhere especially said did you know because a lot of folks are thinking brown shouldn't back away from Marty writes -- hey you know if you back away you can -- -- the really big job market. One and and it was done in the context don't forget of all the uncertainty in Washington at the at even more so this year than I think any other year. Where -- when we were going into November December you know you had the presidential election and you had you know some real bond issues within the political parties and the polarization was really becoming. You know pretty nasty and and -- as a result the were real concerns about -- three different deliverables that the government had to come up with in the first quarter and you know essentially. Other than a large tax increase on the wealthy. Armed you know the rest of it kinda got pushed aside pretty handily so overall it didn't hurt us too badly right. And of course for proposals in last few weeks wouldn't argue a lot about belongs -- on market and and look out right a lot of that going -- the -- sure who it's so funny matchup because there are the for the first time I can remember in awhile in the Wall Street Journal there was an article -- earlier this week that was called key bond index gets bitten time and guess what that was about -- -- Q1 man that was about the aggregate bond index in the aggregate bond index by the way. It's just an index of primarily. From government and high grade corporate bonds okay US. On and what is -- what's interesting is only twice in the 37. Year history. Has there have been a negative calendar year. -- so people are very you sound to seeing their bond total return be a positive number in the 37 years that they've been calculating this index okay. So 37 out of 39 times it's been a positive number I used to read write and by the way just give you an idea how much it's been. It's it's the average annual return has been seven point 7%. Each year for thirty year at 28 whatever I say it was -- thirty some year right that remind you compare that to the S&P BS and he's only 11%. So the aggregate bond index looked pretty good -- you don't during that period no mind you this is the first time in six or seven years. In the first quarter that we had a negative quarter in the aggregate bond index at this -- Something to pay attention to something as you said we've been talking about quite a bit which is. You'll be aware of these high quality fixed rate bonds whether they are treasuries or high grade corporates because. They are going to start to eventually get hurt as interest rates start to rise. We've talked about your paper ideas I've just mentioned it again now and I were a leader in the corner as well. Do you know you're number rising interest rates and their impact on your portfolio. It addresses that addresses of right this is right on the right right in the teeth right it's almost like he knows he'll have a ball well. They are certainly we can we had some concerns about. Now having said that let's talk about you aren't going back to this Q1 thing kind of how did we do you know I think overall if you had a a mix between you know the S&P 500 in the aggregate bond -- you should be looking for return of L five or 6% for your portfolio and one quarter but I don't know why you put that feels pretty good to many -- Julio but you know again there were winners and losers in this although from a sector perspective in the United States. Aren't certain sectors did better for example health care came -- and almost 16%. That's one that we've talked about for quite some time as being in our opinion undervalued. And -- and sure enough. As Obama care became less and less of a an unknown. You know it's really become more obvious which health care companies could potentially benefit from -- and and and -- tournament and as a result health care sector overall was up. More than average as I said the S&P was up say eleven. Health -- is up almost sixteen. Consumer staples is another sector that we've been heavily invested in. Over the last several years and it was up almost 15%. And I'm the first quarter we felt great about that and then electric utilities. Were up 13% Modano again these are sectors that we have participated and now mind you I wanna say. That some of these sectors were under performers at the end of last year so some of this was just catch up from okay. And overall you know what -- exe edu is that. You know there weren't that the disparity between the ones that did the best in the once it did the worst weren't that terrible for example the worst performing sector in Q1. Was technology it's still made 5% are okay and the one that did the best was health care which made 16%. So. If you think about it you're really neither one is terribly off that average of 11% to an OK for the overall lesson -- So as a result. Your overall. Almost all the sectors did well obviously some sectors did better than others and we talked about those and I also mentioned the the thing about aggregate bond is not doing well essentially losing money for the first time and allow. But interestingly something we've talked about we've talked about again in the context of our paper. High yield bonds during this period. Me in Q1 made almost 3%. OK you know and so you know that's a very that's a very nice return an offer for that kind of a period and the other thing that I I think I mentioned was that the developed. -- European market European and Asian markets made 5% that was good. Emerging markets were actually down 2% during this period. -- not reflect some weakness in you know essentially commodities amongst other things. I suppose that the regular listeners of the program Paul would be asking you now OK Paul so you you did kind of predict that Q1 was that was rumbling by wanna take part in. But so what does that mean for Jews to nutrient for where we're going from here. Right how you position yourself for that I'm actually gonna talk about that I went to are terrific conference this week. I do go to conferences once in awhile don't think I go to them everywhere you are up I want to this one was one that right I could not miss and it was it was run by new -- asset management but. The guy who I was the speaker. Actually was the chief equity strategist in his prior life for black rock and he was very very good his name's Bob doll. And he and in no relation by the way to Bob Dole idea that the senator -- whose arm but this guy has had a terrific background in really understanding the markets and describing what's happening in the markets both now and then looking forward in fact he's. Very famous for his his prognostications. Every year he does what he thinks his top ten predictions are gonna be off for the market. So what I'm gonna do though are not right now for someone to do something else first. But what I'm gonna do and later on in the show today. -- I'm gonna talk about what his top ten predictions are for this year and then I'm. Also gonna tell you what it means for how you could prepare your portfolio to take advantage of that. OK okay around. That's on the listen for this -- you later in the program. And after the break rule below gets a little bit more about that our paper because. And it really especially because with this news will be discovered now on hole aggregate bond index -- yup it's coming home Guerrero -- certainly is up so it's again that's coming up. The -- -- -- -- -- number rising interest rates and their impact on your portfolio if you haven't already requested yours it's free of charge. You can call Paul's office now or during the weekend requested. Toll free number 889727526. That's ABB 8972. Plan and just ask for that the bond paper do you know your number paper it. One of the interesting things about the paper is not only is it described within this number is the polls start he belt but if you wanna find out your number. Free of charge -- be happy very command -- your portfolio look at bonds that might be buried or hidden within your portfolio. And much you know what might be happening to your portfolio if interest rates do -- go up all of that's coming up later in the program as a -- number eighty 89727526. We'll be right back in his play a strong financial -- this is Paul Parker. It's a good -- -- a -- -- are very good contest involved Parsons is -- president to play strong investment management and day. Week before the break talked a little bit about. Paul's paper and I know Le hello folks have been asking for the paper ball and a legacy -- first of all free of charge -- -- -- really makes a lot of sense given. The news he just told us about the the aggregate bond price index and I think in the -- going in the negative direct. And first time in six years in Q1 what does that mean I am and what should we be doing also most people don't understand or or maybe that you know thirty years is a long time to remember the last time that applies really weren't that great okay. And -- -- a couple of times where they've underperformed but the further you we've been and what most economists would describe as a bond. Bull market for the last thirty years is interest rates have come down from sixteen or 17% for ten year treasury down took -- a 2%. And on and it you know because of that people of had done terrifically with long term bonds having said that. From interest rates are are poised to go up and in fact -- they they started they started to go up and that's why the aggregate bond index actually went down the total return in the aggregate bond index was actually down in Q1 of 2013. And that was in the same context of look at the outlook at the stock market the US side S&P 500 when opera you know 11%. Not so it boy it really. It's a little salt in the wound if you say well I'm really safe from -- respond you know in these bonds -- -- sleep at night and the answer is actually you didn't even break even you lost a little money and by the way your neighbor who's over there. Polishing his new cars and I was in the S&P 509 made eleven and a half percent out of your day go into right. So I you know I think if -- what you have to do is not all bonds perform poorly by the way -- -- as I mentioned for example junk bonds made almost 3% during the period. If you annualized sacked three times forced 12% off any day of the week I'd take that for bond fund rate so. You sit there you look at it you say. On you know you have to be more aware of how to make money in the bond market today because frankly the federal government the Federal Reserve has been in Bonnie and all the high quality bonds they've been buying. Not only non US treasuries but also mortgage backed securities as well and so they've dominated the market I I actually read. A story the other day that said or heard this from economists. That said that the US government is actually bought war. Our bonds stand the total amount of the auctions. In the last few auctions and if that's the case you don't talk about completely manipulating the market and bidding the price up to ridiculous level that's what they've done. So anyway that's what's going on the bond market right now so but the natural corollary as well. Should I just avoid bonds or you know are there certain bonds that do well as opposed to not so well in a rising interest rate environment. And and the short answers were actually there are bonds. Types of bonds that have been negative correlation. To the aggregate bond index and -- a lot of people don't know that in other -- state. If the aggregate bond index goes up these go down and vice Versa so if interest rates go up these actually do well while the aggregate bond the next goes down OK good to know and so you know we've talked about some of these in -- and marketed all over them again now. But you know some of the ones we've talked about. Include floating rate bonds tips emerging market debt and junk bonds. So those are once attended -- well. Bomb blast we don't we also talked about preferred stock -- as an asset class. That's -- attracting you know yield hungry investors attention could not really bonds per say they're not but but they act. Act a lot like a bond and most importantly they have a coupon associated with him you will a dividend payment. That's literally stated right on the preferred stock. And got the right now they're yielding a north of 6% overall count. So in this kind of an environment of -- awful lot of people who are you know are getting pushed out the risk curve. And arm are taking on more risk by buying preferred stock. -- and the you know that the question that an article came up this week that I'd started to talk about this last week and I just started to chuckle when I saw this article was called. Preferred stock are 6% yields worth the risk not and I laughed because. Last week I think I'd I'd tried to make the case that you know this is of a class and asset class that I'd actually stayed pretty clear -- And and I'm gonna tell you why so my short answers no I don't think you should I don't think they're worth the risk cannot and I personally am not putting our clients in numb right now but let's talk about why because again -- -- -- that's 6% looks really really good film and you what's funny about two -- it depends how much time you go back and you look at for performance beat us. I actually went back and looked at the performance a preferred stocks over the last three years last five years and so forth. Do you know what the beating is over the last three years virtually nothing almost zero in other words dim fluctuated at all. Okay all we've done has kind of gone up in value over the last three over the last three years but you what the beta is over the last five years who. So what that means is if the market went up one they want they went up to war the market went down one they went down to which means. That there -- very they they're very risky they're very volatile okay. And so. Might point in saying all this is. This is not atypical. Debt tight security this is not atypical. Loan to a company and it certainly is much more volatile -- So really if you're an investor out there and Europe preferred. Stock -- preferred stock index and ETF for mutual I don't care what it is please please please. Understand what you invested in and understand at the last three years or not necessarily the way it's gonna perform coming up in fact. I would bet strongly it's not the way it's gonna perform and it's not and it and frankly it's gonna I believe it's gonna perform poorly. And -- over the next bunch years if interest rates -- so we talk about this a little bit. -- first -- what are preferred stock preferred stocks art are Iran are equity but they have eight fixed coupon rate. Associated with them essentially you are. Giving your money to the company and the company is essentially saying okay on their pay you 4% or 5%. Or 6%. Of the of the face value of -- -- this year that you you bought from him okay. Interestingly. 90%. Of all of the issues that are preferred stock are in the financial sector and you know me can I haven't participated in the financial sector -- quite some time why because abolish shenanigans that go in there -- frankly in -- are counting. You don't know what kind of financial shape these financial firms -- -- And I can't put my investors in that especially you know people that can't -- through market cycles. You know these are people that are relying on their -- -- Iran investments being in something relatively solid -- and and I don't believe the financial sector is all that solid my perspective. I not all of them are John Cook some of them are actually rated -- or higher and that's okay so that's good you know. And I'm debt under other thing that you need to understand is that when bond interest payments are contractual obligations. And the failure to pay those sets bankruptcy in motion. Preferred us. Dividends. Are paid at the discretion of the company they can be suspended at any time a minute it's relatively rare move but I'm telling you. Back -- during the financial crisis and a lot of preferred stocks dividends got a lot has been relatively rare things happen to them exactly and that was certainly one of them okay. On another thing that you what you should know about these is because it sure is you whose preferred. Because debt cost too much in other words they've already do you think of it this -- they've maxed out their credit card okay so another trying to find another way to if you will borrow money okay. So you are that's another thing where I really think it's important for people understand in the pecking order. Typically which kinds of companies use preferred stocks in their capital structure and often. It's companies that frankly are doing it because the debt market is close to them at this point OK -- And it which means that you know that there may -- not the best financial shape compared to smothers okay. On one thing that I think people don't understand is the -- can be volatile and and I I mentioned that specifically our earlier. But there was actually I think three times. In the last say ten years as sorry feet if what fewer that three times in the last five years were preferred stocks. Have lost more than ten or 15% of their value. In say a tool that three week period. All right so I don't think again you know people are are kind of bumbling along here I know what they're an awful lot of people who -- in the east they've attracted a lot of inflows into mutual funds and ETFs. And all I can Sadie who is she need to understand what you are investing in and the value of this could really radically change. In a relatively short period of time. Are there were two ways to invest in -- from an ETF perspective. One includes. I'm financials and that's the with the ticker Piaf fast and that's by far the biggest investment in preferred stocks out there. And then there's also one though that if you wanna ignore financials -- avoid financials which I've done. I'm but you still wanna be preferred stocks then there's a preferred. And -- -- on financial preferred ETF with the ticker of PFX. -- And that typically holds our utilities and troubled companies and it. Long story short is I would be careful really careful. We preferred stocks right now and I'd be careful preferred stock ETFs mutual funds or whatever because the other thing you have to remember about these is this -- When interest rates go up exact an awful lot like a long term bond OK okay so if interest rates go up. And I've got a preferred stock. Our preferred stock DT after it's based on paying -- a coupon of four or 5% now interest rates go up to the government's issuing new bonds and they're paying for 5%. Which one would you rather have -- the one that has very little or no risk or preferred stock that has some risk the you know the answer is. People will buy it will go with the government one from double drive down on the price of the preferred stock. So I guess a question that comes to mind is why do so many people go to George preferred stocks I think -- is what gives I think it's purely a yield play at this point you know more people looking at the 6%. And they're looking at the last three years and saying hey how bad can it be it's been great you know relative if anything the total returns been more than the oldest more than 6%. And and frankly they're looking and I think a lot of people look in the rear view mirror around not looking forward. Last thing it's a candy is that. You could say the same thing about for example I -- sponsored. That junk bonds have done very well over the last three or four years and and again should people be still be invested in them. And what I said there is I'm still comfortable with higher quality junk bonds right now. But I'm very very carefully watching what happens with the interest rates because when interest rates go up I am concerned even though there's less of a correlation -- junk. I'm still concerned that there will be some impact to jump when that happens. Okay once again if you'd like -- copy of Paul's paper it's free of charge do you know your number. Rising interest rates and their impact in your portfolio and -- anybody over the last several weeks to papers free. Paul be happy to send out a company do you just gives office a call told free. 8889727526. That's 888972. Planned the papers easy to read us a nice color -- sought even I can understand there -- you -- that -- number 888972. 7526. We've got more investing ideas and we're going to go through Bob ball's projections for the economy when we come back and is the plan's strong financial form. This is Paul Parsons president. It's quite strong financial forum I'm Ken -- EPA today basketball Parsons is here president of -- strong investment management didn't have done a good show also part follower halfway -- I can't believe it already -- spiders that it moves really -- thank you -- -- -- don't -- -- -- exactly and -- -- listeners I'm sure there's things I hope there's an investment -- listening to us because I love this stuff. It's it and we wanna -- -- -- -- for joining us and and once again making us and one of the more popular financial I was little in Boston market we do appreciate that and at the blood that we promises -- is going to be fun. Interesting. And certainly Paul does is best and he can make sure you do and if you'll -- -- -- boy infopath you'll see a lot of information. Before the break we were talking about it promotes referred to and the whole idea preferred stocks and it's. It's interesting it certainly would scare me off a little bit but he had a couple things you want to add before we moved up. If you -- scared before let me give you something else to really be afraid in a way don't nine. I preferred stock index was down 53%. -- OK so while the aggregate bond index was actually flat during that period as our call until now from memory. On that the preferred stocks lost 53% of their value OK so if this just not for the faint of heart stirring -- -- OK if only other thing I'd say is. That these are trading at at a premium right now which means that. Again that there were their overpriced you know they're they're priced higher than their face value and what that means is. -- you're getting a yield below hole. What was market when they are originally issued this this preferred stock. So both of those are you know flashing signals to you won that -- for a valuation perspective -- expansive. And beef from a volatility perspective. You know these are not for the faint of heart I know that they've been relatively calm the last few years and and it's been a nice gentle ride. But you know that there are one of the articles I read that I thought was really terrific called -- an an unexploded ordinance. Which was that to you -- don't know that the break before you know this thing's been kind of humming along just fine before when it blows up it blows up looked OK and please be aware of that price to be careful. And I suppose if anybody has any questions about what they may have in their portfolio don't think you do your -- -- call even have a look at the absolute fortune off your preferred stocks within your portfolio Campbell's number again 8889727526. Now let's get onto Bob doll not Bob Dole no not -- not his brother -- this guy's terrific and I just say that I I have a little bit of an investment guy crush on him energy and the reason I dozed. 'cause our key he's been very very successful black rock not as an equity strategists and some of these guys have no clue what's gone on this guy really makes sense and and I. I listen to him I listen to a guy JPMorgan Chase soar thanks very good -- Probably half a dozen guys are really listened to right when they speak about the economy of the dynamics economy and so forth. Anyway I went to a conference where he spoke about his 2013 predictions and again several these really rang true and I -- Sherman listeners today because not only get in my gonna tell you what is prognostications. Are. But also one of the talk to you about them. What does it mean for you from our from a portfolio construction perspective OK so how do you act on this information okay constitute so let's start -- 2013. Prognostications. First he said. Look I expect the US economy to continue to model for a okay we don't have to be or a rocket scientists to believe that nobody really he did a nice job of it essentially I'm explaining why that is the case. Essentially on the positive side you've got several good things happening including employment improving although slowly got housing healing. Are you got relatively low inflation although sings a very good for the economy okay. On the negative side unemployment slope to pretty high. And that fiscal drag is a problem what's fiscal drag all it means is that the government is cutting back on their spending off the cut back on the spending that means they don't contributes much to GDP. Protect so you look at that and say OK and then also you look at at our consumer deleveraging people continue. To not borrow as much they're paying off their loans when you're paying off along Roman borrowing -- not spending as much right there an uphill all those are reasons why. He thinks that nominal growth for the year is going to be about 5%. -- for GDP and that real growth will be may be around 2% OK and that that feels about right to me. -- he also talked about. -- continued concerns with fiscal uncertainty. As well as the European recession you know those are things you've got to keep dry on an and I thought they are totally agree with that. From the the second thing you said was that Europe is gonna begin to exit the recession by the end of the year okay no mind GO you can draw chart. That show is it the more money that the European Central Bank pumps into the economy. From the buried European economy dust okay. And sure enough that's essentially what the ECB has been doing they've been easing what and their monetary policy sounds familiar it sure does and you know who's who did it most recently was Bank of Japan the Bank of Japan. Just said you know what. We're gonna -- all kinds of bonds out there just like the United States as we're gonna get interest rates really low. And we're gonna devalue our currency and they did that and you know what happened they devalue their currency in November. First time in a long long time I can remember where there it went from 78 yen per dollar up to about 92 or 94 yen per dollar. You know what happened. The -- went up by 42%. OK okay so I mean you sit there you look at you go it does work it's certainly temporarily if you flooded the economy with dollars or yen or whatever local currency has. Well you're gonna you know what's gonna happen is gonna push up the dollar value or yen value or currency value of whatever your stocks are that it's can't to a forever I get a dollar that I know but -- because European Central Bank is doing it you know there's a real -- belief that Europe will recover that certainly their stocks. Will recover Barrett during this period. And the other -- happen is that. You know there that the concern about credit risk with Europe is also down on the amount of impact activity that the European Central Bank has had to take to kind of shore things up is much much better so that looks better. Third thing he thinks is gonna happen is that the US yield curve is going to steepen you what that means our long term interest rates are going up. Okay yeah well. -- told me that exactly so and guess what we agree and the reason that he thinks that that's gonna happen is because the growth outlook is gonna improve really essentially -- the world. And financial risks will recede and if that and if that happens. Van you know central banks can start to raise rates without worry of of totally are killing their economic our recovery okay. -- -- he thinks it's gonna happen is US stocks are gonna record a new all time high won't guess what they already did OK -- but there but there're there're gonna advance for the fifth year in a row. What I really liked about his talk cure though was he really broken into four reasons why he believes. That will have a relatively good -- stock market this year in the United States let me let me cover ready. The first topic is monetary policy guess what we've got aggressive monetary easy going on right now right big belly that is. Pumping money in there what eighty or ninety billion dollars a month that's what thereby right in -- -- From a fundamental perspective the hot housing is healing our companies are spending more money on capital expenditure -- There -- manufacturing Renaissance so we've talked about before. And less energy dependence on people outside the US that's much better. And even potential fiscal reform then you know guess what we we actually are starting to get at least a BP step in the right direction. Of getting our fiscal house in order all those things are really important -- at improving the economy and the stock market. Another thing that's really important is investor attitudes investor attitudes are better. Because investor skepticism has gone down dramatically you can look at what the the consumer sentiment indexes are. And guess what they're looking better and better and look at that again helps pump up stocks okay. And finally from a valuation perspective if you look at the US stock market. US stock market is trading around thirteen times forward earnings that is not high. Compared to historical averages now there -- other metrics that are out there that -- say that it could. Be trading a little bit higher than where it is today. But or sorry it's a little bit richly valued compared to historical levels but certainly from afford price earnings multiple perspective or from a valuation perspective. It's looking reasonable if not a little bit cheap. And last but not least there's a lot of cash on the sidelines so a lot of companies can buy backed -- stock -- they can invest -- other companies into merger and acquisition activity and all that drives up the prices stocks OPEC is that because companies have been holding back over the last few years yes yes they've been essentially putting away for rainy day and the rainy day looks like it's past. At least to some degree and as a result the starting to part with some of the caption aren't okay. So that's why. I thought a very compelling case for why the US stock market would need to be relatively strong this year -- -- The other thing you said those that are emerging market equities are gonna outperform developed market equities at night ICL blast -- Emerging markets -- -- -- they were down I don't know one or 2% by this year he thinks they're gonna outperform. And the reason he thinks that they're gonna outperform this for a whole bunch -- reasons but one of them is. Easing monetary policy does that sound familiar -- -- the battery inflation trends really good population growth. And increasing middle and consumption class rising we -- real wages of those people can actually buy stuff. Better productivity. And low government debt all those things feed into why are emerging market equities should outperform. It's it developed market equities smoke and okay. Then are you get a couple others that did he talked about but long story short is he thinks that another thing it's gonna happen is the dividends are gonna increase. On stocks that pay dividends and the reason for that is because we are. At eight. -- -- are a relatively historical low in what's called the dividend payout ratio in other words companies have are generating tons of cash. But they're only paying out around 30% of their cash in dividends. That's the relic that's slow compared to save forty to 50% which is usually the average of what companies have been paying out. For dividends and buybacks OK so that's interest thing could you candid take advantage of companies taking advantage of higher dividend payouts and who might those companies be the US manufacturing Renaissance is continuing -- and and that's gonna be powered by cheap natural gas OK and we talked about that -- you give you one -- on that that cost -- BT million BTU in the US for natural gas three box noted is in Japan. Thirteen -- now okay so there's a ten dollar differential right there forget of the delivering or anything else that's what it cost to make -- okay. When you're making cars you have to use a lot of energy to make that car Japan during United States we now have a competitive advantage because of -- cheap. Gas so those are a whole bunch of the reasons are are things that -- -- felt. We're good prognostications. For looking ahead but now we come back what I wanna talk about as what is it means your portfolio how do you take it via. It should especially with him back in his plans strong financial form this is Paul Parsons. It's supposed drug financial for a moment Ken -- the anchor desk today and -- Parsons is here president of planned strong investment management in Paul's been going over a lot of really priciest ever really like this last segment -- -- discussing. A ball to all of new -- outlook for 2013. -- these predictions his top ten predictions very cool stuff but you know what don't a lot of -- ring true -- you makes -- the only when he hearing you right now it makes sense he doesn't say hey you US economy is gonna go through the roof and and -- no idea why or vice -- right now he's very good -- it make it doesn't he says and -- no -- to talk a little bit about how -- you could maybe translation enemy action yeah I thought we made a little bit of money. OK so let's talk about what this means is it worth it relates to your portfolio construction. But first thing I'd say is you know cash you wanna -- cash as little as possible why just because you make enough and on so. You hold as much as you need for emergencies but not a whole lot more than that that makes response I would underweight bonds and again you have to be careful because certain kinds of bonds -- won a completely underweight. And other kinds of bonds you can still probably get some juice out of we've talked about that in past. Weeks but certainly I would be very very careful and I would heavily underweight. Armed government bonds is it fixed rate government fixed rate government bonds and not high grade corporate bonds -- okay. On first stocks you know based on -- several things you certainly want to be in the game and if you weren't in the game. I UP paid the price in Q1 -- you missed 11% increase in portfolio right now with the component that would have been in stocks. I'm I think -- the reason I like our stocks though is because the relatively cheap and they have some growth with them so overall I'm feeling pretty comfortable that. Again the -- the devil's in the details Jessica peck at the right ones but uncomfortable having a pretty. -- such an overweight position in stocks at this point you just. Insert a little bit and Allen dropped to -- much but the idea of picking the right stock yes for you -- temple where you are in life what you look -- -- looking for growth -- income at -- etc. Has it ever been more important -- now now you know you you hit the nail on the head cannon and. You just which sets certain sectors you have to be careful of as you as you know we've talked about that it's at and so forth. Armed and then if you look by geography for stocks in this another place not only do look at sectors but you look at geography. Offer geographies. The you know the US feels like it's probably one of the better places to invest and as a result you know probably overweight in the US. Europe I would underweight from and you listen there are opportunities in Europe but. Boy is not for the faint of heart and it's not your father's Europe I'm you know there is planning Everest in Europe if you don't believe that is think back a couple weeks to Cyprus from her okay. And Cyprus could have bled out a lot more than it did. Are and they're bigger economies that -- really could have big problems if they're not handled properly either so I would be careful. Armed and and because -- there and recession and beat they've got financial problems okay. Emerging markets I you know I think is an overweight and a sad especially because you think about. How there are dynamics in place that are emerging markets could outperform US markets because of their valuation. Because of their growth prospects. But you know they haven't had a tour secure this last year. A which by the way probably means they're more fairly valued or better value than ones that have had terrific years this last year I grew so their economics are improving but they're not expensive so that's kind of let that take home on emerging markets and I think emerging markets probably an overweight at this point. Having said that. The other thing I talk about -- sectors that I think -- interest thank. -- I think that info -- has good growth prospects and cheap valuations that that double combination looks pretty good to me in Cambodia -- -- -- to argue about what you see and protect -- some good result you know just think IBM think Broadcom Qualcomm and again I'm not suggesting you fire sell those stocks are -- saying those are examples of info tech tech companies okay. Industrials. Aren't they could benefit from. The expected capital goods order -- cover in other words capital expenditures and talked about earlier in the company's need to buy machinery. I -- result industrial should benefit from that. And even you know consumer durables to that some degree you know a lot of people of put off buying that that automobile or that washing machine. I -- the economy is lousy and they were delivering her or at essentially paying off some of their loans. Although you know at some point the car breaks down the washing machine breaks down the media decide you're gonna wash your clothes in the saying everybody buy -- washing machine bill. And essentially that's what's happening people that's -- car sales or so dramatically right now can. Because people are saying you know what it's been five or six years or more since I bought a new car and you know what the -- into -- so well not you know I got to do something about it so. I would say certainly something like that might make sense as well. Our consumer staples continue to look relatively good going forward in our perspective because they have our global tale land and what I mean by that is. The global economy is increasing that emerging middle class a consumption class image these huge economies. Is a huge new market for you know that the likes of Procter & Gamble on and and so forth and and 41 -- take advantage of that from Coca. And I even telecoms also might look good and the reason for that again -- if not just the number of people in the proportion of people that have Smartphones and tablets are all crazy stuff it's huge but it also the amount that they're using -- the amount of -- is the third downloading on the because of the technology hardware that's allowing them to do that. As a result you know what. There's more data plans more money per person that you're able to get from those cities some of these telecoms may still be reasonably valued although I would be very careful their game. You have to be careful and finally health care. Is probably the last sector that I would also mentioned as being a good cheap valuation. And I would just be careful. Again with which ones might potentially get hurt with changes with -- obamacare and so forth -- we have a lot of stuff coming up pretty sound you know just January 1 when he fourteen. Is one obamacare starts when you're gonna literally start to see changes -- out there -- and how it impacts companies. So that those were some of things that died I was listening to Bob doll about the then there was also. On Kipling -- had an interest -- comment about what they thought we are businesses would likely be spending and I thought this was good because. They talked about growth really being concentrated and a few areas and guess what info on technology again we're right up there at the top okay. Because companies want -- to boost their output but they don't wanna add more people okay they're really afraid of getting stuck with too much headcount. A corporate for drilling and exploration of oil and gas does that sound familiar you're -- I'm sophisticated machine tools as manufacturing. Expands -- as we talked about that also this will be shoring of manufacturing. -- the United States we need good machine tools to make that happen and so forth and then machinery for the with the auto industry we're making fifteen million cars this year or more. Our -- in the United States and cheese are not not three or four years ago we were nine volcano mind you fifteen healthy work 153. And so that's that's a pretty good -- a place to be. And finally -- is some investment for homebuilders you know select Lowe's is expanding you know those kinds of companies also might. I'll be places where you'd -- may want to consider right investing and again I'm not recommending your buy or sell any individual stock. He went over a lot of stuff let me just remind folks that if you heard some -- the -- know a little bit more about feel free to call Paul during the week and just say -- energy mentioned such and such how might that affect -- -- how Biden right take advantage of that to be more than -- to help -- out. The toll free number eighty 897275260. It's 888972. Plans I know we had a lot of newsroom this last week following them. -- -- -- -- some business stories like car or pretty cool can you know first -- -- I talked about the Bank of Japan and on the -- they did not only did it it -- since November have -- said hey listen guys we're gonna we're -- beef up. The price of our bonds and drive down their yields much like the US is on her. But they DR came out this last week and said actually we're gonna double our holdings of government bonds OK that is incredible. -- and as a result. But you know but the markets moved very very significantly this last week both in in the yen -- per dollar. As well as other nick K -- -- up very very dramatically why because think of it this way if your currency is value laughs. Then your exports are cheaper. So Japan now you don't think Toyota thing or Nissan thank you all these auto companies that manufacture a lot of cars in Japan. Well if a lot of their contact is done in Japan. And it's they pay yen for that -- youngest became a lot cheaper and there are exporting that now with a cheaper young they can export that the United States. And not you know it it -- price can make them much more competitive with the companies that are manufacturing here like Ford or GM or Chrysler. Okay so -- -- that also a very very big move for Japan Japan is actually getting serious about trying to fix itself. Having said that I still don't I'm not a big believer in investing hugely in Japan. I'm motor vehicle sales for march I said were excellent they came in Iraq fifteen point three million on an annualized basis that's a big number you know and literally all of the the big US the Big Three are US -- auto companies reported their strongest march sales in five years okay. Now you gotta be careful you -- and by the way they were all up say 567%. And an additional I don't know Russia yeah. But here's the problem with this you gotta be careful because some companies like Chrysler one way they did it. Was to increase their sales and sent us this sounds really familiar their average price went down because they -- a game more rebates are more you know whatever. But that scares me a little bit. But the others actually did well I'm you know based on -- not as much discounting and and so forth from the other thing that happened was that a Toyota and Nissan. Had only 1% gains so the Japanese didn't do was sweltering this time as the United States companies did. On and and even armed the Korean models. Did well but not quite as well as the so overall I'd say it was a very good. Good month for around the US auto makers -- Next thing that came out that I wanted to talk about was an employer's. Information came out that. That debt -- Employment is is improving but gosh it's slow up fourteen out of a hundred regions. Have made it back to pre recession. Levels. A tank that means switching out of 186%. Haven't broke anger at. We're still at three million fewer jobs can then we were in January of a week so this is -- really really painful. My recovery from an employment perspective. And you know that was further our solidified by both the the initial jobless claims firm on the past week. As well as the GDP numbers came out as well all of them saying essentially that. Employment isn't growing as fast as we'd like to. And our chock full of information Paula thank you for providing all of that once again to call Paula it's easy enough -- free EDD 89727526. Eighty 8972. Plan. And Paul and his team are always happy to offer you a free portfolio overview will be back next week I look forward to it so why can't have a great weekend it's a -- strong financial -- This is Paul Parsons president of planned strong investment management and you're listening to the plan strong financial performance WRKO Boston's talk station. If you like what you hear on our show what the media take a look at your investments and retirement plans. Call our office in 8889727526. That's 8088972. 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