Tag Archives: bonds

Friday Market Update

Posted May 13, 2011 by admin. tags:Tags: , , , ,
Wall Street Street Sign


Written By Nathan White, Paragon’s Chief Investment Officer
 
The markets have been down for the first two weeks of May. This was led by weakness in commodities, which had been on a tear over the last six to nine months. The materials and energy sectors have been hit the worst. We have been using the ups and down to lighten exposure in the materials area because it looks like it has seen its best days on a risk adjusted basis. We also pared back some energy exposure, but might look to re-enter at lower prices if given the opportunity.This is a seasonally tougher time of year for the market. The market is looking tired after the good run we saw and the uncertainty of the impact of QE2 ending. The majority of our models are still bullish, but not with a same degree of conviction as we saw over the last two years. We have built up a cash position in our growth portfolio, Top Flight, to hedge and take advantage of any dips.

Hopefully the market is just entering a consolidation phase wherein any corrections would not become severe as the fundamentals still supporting the cyclical bull market remain intact.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

 

Living With Uncertainty

Posted May 5, 2011 by admin. tags:Tags: , , ,
Downtown Wall Street

Photo by azureon2

Written by Dave Young, President of Paragon

Stock and bond markets incorporate all the available information at a given point in time when they operate efficiently. We saw other European countries with potential difficulties when sovereign debt problems emerged in Greece early last year. Along the same lines, we also saw an immediate spike in the cost of insuring their debt. The market factored this possibility in even though they had not run into problems yet.

Market analysis spend thousands of hours each year looking at these kinds of issues. Slow forming problems like government debt issues can be analyzed beforehand with enough time and research.

Unpredictable developments that cannot be anticipated such as these:

-The volcanic eruption in Iceland shut down 100,000 transatlantic flights and cost the airline industry $2 billion.

-The explosion of the Deep water Horizon oil rig in the Gulf of Mexico.

-The street protests resulting in changes of leadership in countries in North Africa, leading directly to the current military action in Libya.

-The earthquakes, tsunami, and nuclear-reactor crisis in Japan.

Set Your Risk Tolerance

The only way to handle uncertainty and manage the impact of unforeseen events is to build strict risk controls into your portfolios. While the risk of one-time incidents cannot be eliminated, through diversification and risk management, we hope to limit the damage when negative events such as massive frauds like Enron, sudden bankruptcies similar to Lehman Brothers, volcanic eruptions, oil rig explosions, or earthquakes occur.

Considering this, it might be useful to provide an overview of our approach to risk management and portfolio construction. The first step towards controlling risk is to make sure your individual risk tolerance is set properly.

Your risk tolerance can depend on many factors, such as how close you are to retirement, your goals, or lifestyle needs. It is determined by the returns you need to generate in order to meet your objectives and by identifying how much risk you are comfortable with and can handle. If your risk tolerance is set too low, you will not generate the returns you should. If it is set too high, you will feel pressure to sell your investments if market conditions become difficult, which could cause you to miss out on superior long-term returns.

Once your risk level is set, it helps us identify the mix of stocks, bonds and cash you should hold in your portfolio. It determines how conservative or how aggressive your portfolio should be. The allocation we put together based on your risk tolerance strongly determines how much volatility you will have to endure when unexpected events occur.

Risk tolerance is different for each of our clients because each has different needs. If you have any questions or concerns about your individual risk tolerance, please contact us at 800-748-4451, and we will make sure it is set correctly.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Understanding the Risks of “Safe” Investments

Posted April 21, 2011 by admin. tags:Tags: , , , ,
Risk Time


photo by fayj

Written by Nathan White, Paragon’s Chief Investment Officer
Taken from Paragon’s 1st Quarter 2011 Print Newsletter
(continued from last week)

What are some of the risks of investments typically held in a more conservative allocation?

Many like the safety of cash-like instruments such as savings deposits and money market funds. These are very short-term and liquid investments and hence offer about the lowest return available at any given time. Bank deposits are usually FDIC insured up to $250,000 per bank.

Short-term investments are usually very safe and liquid, but you are exposed to the credit risk of the institution (i.e. the financial ability of those to whom you give your money to pay you back). During a financial panic, such as 2008, the weakness of these types of instruments can be exposed in the form of a liquidity crunch. This occurs because everyone wants their money at the same time and assets are unable to be sold fast enough to cover the demands. While the probability of this occurring is low, it could be devastating nonetheless.

Certificates of Deposit or CD’s are one step up the risk ladder and offer higher yields than cash in return for locking your money up for a specific period of time.

They are often FDIC insured as well, but are subject to the credit risk of the issuer. You also run the risk of locking in low rates that don’t provide a sufficient return or keep pace with inflation.

Government, corporate and municipal bonds are subject to interest rate risk, inflation and credit risk. Before the financial and European debt crisis, the latter seemed to be a remote possibility for government bonds. However, the growing debt burdens of governments across the globe have called into question their ability to sustain and ultimately service that debt. Ask the holders of Greek, Irish, and Portuguese bonds how their “safe” government bonds have fared. Even municipal bonds have had trouble lately due to the debt burdens of states and municipalities. There would never be enough money to bail everyone out at the same time.

Paragon’s Approach

At Paragon, we believe in creating a balanced approach by obtaining income from a variety of different sources rather than just bonds in general. That way we don’t get crushed if one area runs into a problem. We look at the yield or return of a particular investment in relation to the risks involved. Currently in our Managed Income portfolio we are invested in preferred stocks, REITs, high-yield bonds, and dividend paying stocks in addition to bonds. We are keeping the maturities on most of our bond holdings on the shorter side to protect against rising rates.

Over the long-run, we believe that investing in a diverse source of conservative asset classes and over-weighting the areas we feel have the best return for the risk is an effective strategy.

Disclaimer
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Sell Treasury Bonds Now?

Posted March 24, 2011 by admin. tags:Tags: , ,
Walking down Wall Street

photo by andos

Written by Dave Young, President of Paragon Wealth Management

The big news in the financial world last week was that Bill Gross, the largest bond manager in the world, started selling his treasury bond positions. That caused concerns for many bond investors.

Why would the king of bonds be selling bonds?

Maybe because they currently provide very little if any upside potential and a lot of downside potential. If you are going to get next to nothing to own them, but be exposed to significant downside risk; they don’t make a lot of sense.

Our intermediate and long-term bond models have been on sell signal for several months. Unfortunatly, if you are just selling bonds now, you have likely already experienced losses from your bonds over the past few months.

If you don’t want to own intermediate and long-term bonds… then where can you go for safety?

Our conservative portfolio, Managed Income, is designed first to provide protection and second to generate returns. This portfolio uses several models which indicate which conservative asset classes are on a “buy” signal and which are on a “sell” signal.

Currently, our Managed Income models show the following asset classes still on a “buy” recommendation. We are still holding positions in short-term bonds, high yield bonds (barely on a buy signal), convertible stocks, preferred stocks, real estate and some alternative funds. We will continue to hold those positions in our Managed Income portfolio until each of their individual models moves from the “buy” signal to a “sell” signal.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

An Update on Bonds

Posted December 13, 2010 by admin. tags:Tags: , , , ,

Investors often go to bonds for safety. Over the past few months, Paragon's advisors have been discussing some of the risks involved in investing in long-term and some intermediate bonds. Due to recent market activity, some of those dynamics have changed.

Watch this short video to learn what has changed and Paragon's thoughts.

  

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Any information presented is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Investments in securities involve the risk of loss. Past performance is no guarantee of future results. All opinions and estimates constitute the judgement as of the dates indicated and are subject to change without notice. Do not rely upon this information to predict future investment performance or market conditions. This information is not a substitute for consultation with a competent financial, legal, or tax advisor and should only be used in conjunction with his/her advice.

Advisers urge Bond Investors to Abandon Ship in Face of QE2

Posted November 18, 2010 by admin. tags:Tags: , , , ,
Sailing Ship


Photo by kevincole

Quantitative easing causing plenty of unease among clients; interest rates are harder to pick than stocks.

Interview with Nathan White, Paragon’s Chief Investment Officer
Taken from Investment News
Written by Jessica Toonkel
November 16, 2010

Financial advisers are using the unexpected jump in interest rates to persuade clients that it’s time to get out of long-term bonds.

Last week, the Federal Reserve commenced its second round of quantitative easing in a bid to push mid-and long-term interest rates lower, and thus boost lending and spending. Instead, interest rates have spiked over the past few days, as the Fed has been forced to entice hesitant institutional buyers into purchasing government paper. Nevertheless, prices on longer-term bonds have continued to sag, boosting yields in the process. Indeed, the yield on the 10-year Treasury hit 2.91% yesterday, the highest since Aug. 5.

“Interest rates are harder to pick than stocks,” said V. Peter Traphagen Jr., an adviser at Traphagen Investment Advisors LLC, which has $240 million in assets under management.

Many advisers have been trying for months to persuade clients to bail out of long-term bonds. But investors, still shellshocked from the 2008 market crash, believe long-term bonds means safety.

But with QE2, clients are asking what they should do.

“I just had a conversation with a client the other day about what they should do in response to the Fed’s move,” said Nathan White, chief investment officer of Paragon Wealth Management.

“I told them that I would rather own a stock where I know the risk I am taking can be higher, but at least I am knowingly taking that risk,” he said.

Paragon has been shifting clients from long-term bond ETFs, like iShares Barclays 20+ Year Treasury Bond ETF (TLT), into dividend-paying equity ETFs like the SPDR S&P Dividend ETF (SDY).

Similarly, for the past few months Traphagen has started to move its clients’ fixed-income allocations from 10-year durations to four- to five-year durations. “We felt that clients were not rewarded enough to go out further on the yield curve and there was a potential that rates may move higher at least in the near term,” Mr. Traphagen said.

Paragon cannot guarantee the accuracy of information from other sources. Opinions are as of the dates indicated only. This report is not a solicitation for any security. Past performance is not a guarantee of future results. Investments in securities involve the risk of loss. Do not rely upon this information to predict future investment performance or market conditions. This information is not a substitute for consultation with a competent financial, legal, or tax advisor and should only be used in conjuction with his/her advice.

Should I invest in bonds?

Posted November 4, 2010 by admin. tags:Tags: , , , ,
Deep Thought


photo by shutterstock

Dave Young was interviewed by Sunmee Choi and Mark Ely on Power Trader Radio a few weeks ago. Click on this link to listen to the interview.

http://www.tradecaddie.com/main/general/uploads/PTR091510.mp3

In this one-hour interview, they discussed:

-Should you invest in bonds?

-Will there be a double dip recession?

-Dave’s view on corporate earnings

-The political influence on the market

-How can we alleviate our fears?

-The influence of the media

-Positive factors (reasons to be hopeful)

-And much more!

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from other sources Paragon believes this to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

A Seesaw Market?

Posted October 14, 2010 by admin. tags:Tags: , , , , , ,
Seesaw stock market

 

Photo by Hoyasmeg
 

Written by Dave Young, President of Paragon Wealth Management
As seen in Paragon’s 3Qtr 2010 Print Newsletter

September is known as the worst month to be in the stock market.
At the end of August, many media outlets and TV talking heads ran stories about how bad this September would likely be. Investors moved money into bonds and gold and avoided stocks. Some of our clients called and asked to be taken out of the market purely because it was September.

What did the market do? Of course, it did what it had to do in order to cause the most grief to the majority. Since everyone expected it to go down… it went up. In short, we just had the strongest September since 1939. The S&P 500 gained nine percent for the month. Unfortunately, because of outflows into bonds and gold, many investors did not participate in the stock rally.

Overall, it was a seesaw quarter.

The markets were up sharply in July, down sharply in August and then up even harder in September. The back and forth movement has been more difficult than usual this year with the S&P 500 either gaining or losing at least four percent in each of the last five months.

Those extreme up and down swings make our life much more complicated. When the markets are weakening, we make adjustments to protect ourselves. When they are strengthening, we make adjustments to prepare for upside movement. We have been stuck in this back and forth no man’s land since April.

We prefer trending markets. Either trend up or trend down, but just be consistent.

When the market is trending, it allows us to capitalize on the trend and ride it as long as it lasts. When it is whipsawing back and forth, we are forced to make constant adjustments, but it is difficult to make progress.  Effectively capitalizing on the trend is how we have significantly beaten the S&P 500 historically.

So far, this year’s market action reminds me of 1994. The good news is that markets never swing back and forth like this forever. Eventually, they break out and move in one direction.

MANAGED INCOME AND TOP FLIGHT PERFORMANCE

Our conservative portfolio, Managed Income, has done well for the first three quarters of this year with a 4.8 percent return, net of fees. This has been a very challenging year for our conservative portfolio. With interest rates at extreme lows, it has been difficult to generate safe returns and still avoid the potential danger posed by increasing interest rates.

You might be wondering why potentially increasing interest rates are such a problem. If interest rates go up one percent, then a 10 year maturity bond will lose about 10 percent of its value. Likewise, an increase of two percent would create about a 20 percent loss and an increase of three percent would create about a 30 percent loss.

With interest rates at all time lows, many supposedly safe bonds are really ticking time bombs.

Investors have been piling into bonds in a big way. Since the start of 2009 investors have put a net $620 billion into bond funds while they have withdrawn $100 billion from stock funds. When rates do eventually go up, investors who ran to bonds for safety will be surprised to find themselves saddled with big losses they thought they were immune to.

Most conservative funds simply buy and hold bonds. Those types of funds will likely get hurt when rates go up. In contrast, Managed Income attempts to own bonds when they have favorable risk/reward characteristics and avoid them when they are unfavorable. That is why this has been a challenging environment for Managed Income. We have been forced to pull returns from other conservative areas while avoiding the majority of corporate and treasury bonds. Managed Income has performed well year-to-date.

Our growth portfolio, Top Flight, has had challenges as well. It is at a virtual breakeven for the year, with a -0.4 percent return year-to-date. Its benchmark, the S&P 500, is up 3.9 percent year-to-date. Most of that lag in performance can be attributed to difficulty in two months, January and July. If you break it down further, it is the back and forth whipsaw characteristic of this year’s market that has made it difficult.

We have spent a lot of the year adjusting and changing direction, right before the market reverses direction.

 As I mentioned earlier, at some point the choppiness usually ends and the trending begins. Unfortunately, we aren’t notified in advance when that will be. That is why we are forced to constantly adjust so that we will be in position to capitalize on the change in trend when it occurs.

Even though Top Flight has slightly underperformed through the third quarter,  we are not terribly concerned. Looking at the big picture, Top Flight has beaten the S&P 500 over the past three, five, seven, 10 and 12 year time frames (see complete track record and disclosures on Paragon’s website, www.paragonwealth.com).

To be continued next week…

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from other sources Paragon believes this to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Past performance is not a guarantee of future results.

Is the Recession Over? How Should I be Invested Now?

Posted August 14, 2009 by admin. tags:Tags: , , , , ,
The New York Stock Exchange Flags

Written by Dave Young, President of Paragon Wealth Management


photo by buggolo

We have been encouraging investors to become fully invested in the stock market since March of this year. We likened the stock market to “the sale of the century.”

At a time when most investors were selling all of their investments, we told investors to move back to a fully invested position.

We recommended that you as an investor take advantage of this rare, although scary, situation by investing in those areas of the market that have historically performed “best” after a market meltdown. We didn’t just give the typical – but useless – “cautiously optimistic” outlook. We named specific areas of the market you should be invested in.

Since the March 9 low, through July 31, the S&P 500 has gained 46 percent. It has made back its losses from January through mid-March and is now up 10.9 percent year-to-date through July 31. During that same time, our growth portfolio, Top Flight is up 17.2 percent year-to-date.

The reason we are up substantially more than the market is because we invested in those areas that perform best after severe market decline — just like we recommended. If you followed our advice, you were rewarded.

Going forward, the question is, how should an investor be invested?

Our indicators and the models we follow are showing there is a high probability the recession ended in June — although this hasn’t shown up in the press and is not yet mainstream knowledge.

The first and sharpest stage of the market recovery usually occurs right after the initial market plunge and takes about three to four months. We believe stage one occurred between March 9 and June 30. The second stage of recovery occurs after the recession ends, which we believe was around the end of June.

If it is true the recession ended in June, then we now want to be invested in those areas of the market that do best during the second stage, or after a recession ends.

The second stage lasts for about six months. Following the last eleven recessions, the data clearly show that certain areas of the market consistently perform best during stage two.

Typically, bonds perform poorly after recessions and should be avoided. Interest rates get pushed down during the recession, and then, as the economy starts to expand, demand for money increases and interest rates go back up. When interest rates go up, most bonds get hammered and lose money.

Bonds are one of the worst places to be as an economy emerges from a recession.

Unfortunately, many misguided investors have been running to bonds for the past six months, hoping to find safety. If history repeats, they will find the opposite of what they seek.

From a big picture perspective, small cap, growth, commodities and emerging market stocks have performed the best for the six months following the end of the recession. On a sector basis, energy, materials, tech and consumer discretionary stocks performed the best.

On the other hand, in addition to bonds, other sectors that usually perform poorly after a recession ends — and should be avoided — include consumer staples, health care and telecommunication stocks.

This difficult market highlights why “active” investment management is so important.

If market dynamics always stayed the same, then a simple buy-and-hold approach would most likely work well for investors. Because market dynamics are constantly changing and evolving, we believe the best investment approach is one that actively adjusts, moves and changes based on market conditions.

Paragon Wealth Management
is a provider of managed portfolios for individuals and institutions.
Although the information included in this report has been obtained from
sources Paragon believes to be reliable, we do not guarantee its
accuracy.  All opinions and estimates included in this report
constitute the judgment as of the dates indicated and are subject to
change without notice.  This report is for informational purposes only
and is not intended as an offer or solicitation with respect to the
purchase or sale of any security.  Past performance is not a guarantee
of future results.   

The Stock Market is Looking Good…

Posted August 6, 2009 by admin. tags:Tags: , , , ,
Beautiful River

Written by Dave Young, President of Paragon Wealth Management

 


photo by somegeekintn

 

Since the March 9th low, the market has been in rally mode. Amidst a backdrop of naysayers, from March through the end of July, the S&P 500 gained 46% and has pulled positive with a year-to-date return of 10.95% through July31st.

The rally has been global in scope, with almost all sectors and countries participating. Global stock markets had their best quarter in over 20 years. For the most part, last year’s worst performers were this year’s best.

Both of our portfolios outperformed their benchmarks.

Our conservative portfolio, Managed Income, is up 7.13%%. Our growth portfolio, Top Flight, is up 17.21% year-to-date, versus 10.95% for the S&P 500. Since its inception in January 1998 through June 2009, Top Flight extended its gains to 301% versus 24% for the S& 500. (That is not a typo).

Last quarter, as the media proclaimed the world was ending, we said investors should position themselves in the areas of the market that historically perform the best after a bear market.

We also strongly recommended that investors avoid treasury bonds. Last year’s treasury bonds were the only decent performing asset class. As a result they became very popular, just at the wrong time. So far this year, treasury bonds have moved from first to worst and are one of the worst performing asset classes, with the Barclays Long Term Treasury Bonds Index down -12.25% year-to-date.

Once again undisciplined investors moved to the “safety” of treasuries after getting beat up in stocks, just in time to get beat up again.

On the other hand, the areas of the market that usually do well after a bear market have performed exceptionally, just as we expected.

From the March 9th lows through June 15th, the sectors we recommended performed as follows:  Financials +94%, Industrials +50%, Material +49%, Consumer Discretionary +46%, Technology +43%. On a macro basis, growth outperformed value and emerging markets beat developed markets. Our focus on Brazil and China significantly benefited our growth portfolios.

BENEFITS OF RISK MANAGEMENT

As I mentioned, our growth portfolio, Top Flight, generated a total return of 301% versus only 24% for the S&P 500 from January 1998 through July 2009. Investors often assume our portfolios take more risk because our returns are high. Actually, the opposite is true. Avoiding large losses has generated much of our excess return.

For example, in the recent market cycle, January 2007 through July 2009 the S&P 500 lost 26.3% of its value. Many investors have done even worse. During that same period, our actively managed Top Flight Portfolio was down only 9.3%.

To accurately compare performance the most important question to ask is, “How much of a return is needed by each investment strategy in order to get back to even?”

Calculating percentage returns is different than most investors realize. For example, if you have a 25% loss, you need 33% to get back to even, which is workable. If you lose 50% of your portfolio, you need to make 100% to get back to even, which is obviously a much more difficult task.

For example, let’s compare Top Flight to the S&P 500. For Top Flight to recover its 9.3% loss it only needs to earn 10%. For the S&P 500 to recover its 26.3% loss, it will need to earn 36%. As you can see, the size of the loss has an exponential negative effect on an investor’s ability to recover. It will take investors in the broad market (S&P 500) three times as much effort just to get back to even versus Top Flight.

Avoiding large losses is critical to long-term success. Investors must follow a disciplined, non-emotional, long-term, proven investment strategy if they want to succeed.

Paragon Wealth Management is a provider of managed portfolios for individuals and institutions.  Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy.  All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice.  This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.  Past performance is not a guarantee of future results.   

 

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