Tag Archives: European debt crisis

Walking the Tightrope

Posted September 24, 2012 by admin. tags:Tags: ,
The Fall hills of Utah

Written by Dave Young, President of Paragon Wealth Management

Investing has always been difficult.  I’ve managed money long enough that I’ve
experienced and survived the Crash of 1987, the Asian Crisis in 1996, the Tech
Wreck from 2000 to 2003 and more recently the Crash of 2008.  One of my fundamental biases has always been
a mistrust of the markets mixed in with slight paranoia.  I believe that mindset is one reason why
Paragon is still managing money after 26 years.

What has been different for the past couple of years is the
length of the cycles that we track.
Historically, markets and sectors trend consistently for six to eighteen
months – or longer.  Much of our
historical outperformance has come from our ability to lock onto those trends
and generate excess performance in our client accounts.

Since 2010, those trends have been much shorter with much
more back and forth motion.  In addition
to the usual factors that effect the markets positively and negatively there
has been a new elephant in the room.

That elephant is Government.
There have been issues created by government actions at home and in
Europe.  Then you add in the effect of hundreds
of new government regulations on the economy, a government spending trillions
of dollars more than it has and a federal reserve stimulating the economy,  i.e. QE1, QE2 and QE3.

I won’t even go into the effects of market uncertainty
created by the upcoming presidential election.
That election will determine whether we move toward an even bigger
government and more regulation or we let
the free market control our economy.
Not to mention the effects of the fiscal cliff we are facing after the
election regardless of who is elected.

Because the government factor is more difficult to measure
and more random, I believe that it has contributed significantly to the shorter
term, back and forth trends.   This
uncertainty has added additional inputs to the way that we manage money and has
at least temporarily, forced us to be more conservative than we would like.

Even when our models are completely bullish we still have to
hold back some cash because of the increased level of uncertainty created by
the government.  It is frustrating to
hold extra cash,  but it does allow us more
flexibility to deal with unknowns that may occur.

There is an old saying that bulls make money, bears make
money but hogs get slaughtered.  Right
now you could call us moderately bullish but definitely not hoggish.

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.

It’s All Greek To Me

Posted June 14, 2012 by admin. tags:Tags: , , ,
Greece

photo by spixpix

Written by Nathan White, Chief Investment Officer, Paragon Wealth Management

The much anticipated Greek elections this weekend promise to produce some potential market fireworks next week.  It seems to be a toss-up as to what the outcome will be and even if the pro-Euro side wins and the market rallies significantly it could be very short-lived.  Right now in the short-term bad news is good news for the market because it increases the odds that the central bankers will come to the rescue.  Case in point – today the markets were tailing off mid-day until a rumors spread that central banks were planning coordinated action in response to what might happen in Greece over the weekend.  The Dow immediately shot up about 200 points in minutes.  Markets love their sugar!

Trying to predict what will happen to the markets in the face of all this uncertainty and volatility can be very hazardous.  It can be very easy to make the bear case but then again so many are making the bear case and buying very expensive protection that perhaps the risks are priced in and any news to the contrary creates violent short squeezes.  In the end the Europeans won’t willingly throw themselves off the cliff.  However, they only move when the markets force them to and by continually dancing next to the cliff they run the very real risk of making a mistake and falling off.  I could go on making the bull and the bear case as both sides have valid points that I agree with but in the end I don’t know how it will all play out.

So what’s an investor to do?  In the long-run (which is what investing is) these short-term “events” won’t even matter.  Markets recover as they always have.  However, these headline events stir people’s emotions and then mistakes are made – something I have talked about in length in previous writings.

We have been raising cash in our portfolios to take advantage of the possible volatility events created by the European crisis.  I look at volatility as an opportunity rather than a risk.  Any sell-off based upon a Greek or Spanish meltdown would probably tend to be violent and short-lived and force the final endgame of the European mess.  As equities are already cheap they would become absolute bargains and this could be a great opportunity and therefore we feel it is prudent to have some dry powder!  However, as stocks are already cheap and pessimism abounds markets could already have priced in the risks and the central bankers could act before a meltdown causing the markets to move higher.  For this reason were are still 75% to 90% invested across our various portfolios/models.  This way if markets move up we will participate and if they move down we have money ready to be put to use.  Seems to be the best trade-off at the present time.

Over the horizon the elections and “fiscal cliff” worries promise another possible round or “opportunity” or volatility…

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.  

Caveat Emptor – Buyer Beware

Posted May 31, 2012 by admin. tags:Tags: , , ,
Zuckerberg's Facebook

Written by Nathan White, Chief Investment Officer, Paragon Wealth Management

There’s a lot of never ending press coverage regarding the recent IPO of Facebook.  Now that is has followed the usual path of most IPO’s in declining after starting to trade on the secondary markets it is comical to watch the blame game circus.  I think it’s a symptom of what ails modern society as a whole.  It’s as if we are all adolescents and don’t want to be responsible for our decisions.  If something goes wrong it must be the fault of someone or something else.   We can’t stand for real estate, stocks, the economy or anything else to go down.  We then take actions to avoid this pain but just end up hurting ourselves even more for the long run.  Investments are long-term, right?   Of course there was a lot of risk in buying a company at a hugely inflated value.  That’s not to say it doesn’t deserve the value or more but just that a lot of things have to go right for the valuation to be justified.  Now that Facebook has gone down over 25% from the offering price people feign to be shocked!  Oh the horror!  Congress should investigate, there outta be a law, evil Wall Street “forced” me to buy it, it’s Zuck’s arrogance.  How about looking in the mirror?

This line of thinking can be applied to almost any crisis, financial or not.  The financial crisis was caused by greedy Wall Street, Bankers, and the government, and had nothing to do with everyone speculating on real estate and being more than happy to take the money that was being handed out.

For decades the Europeans have been voting themselves ever more entitlements and doing less of the productive effort that is required to support them.  They borrowed to cover the gap.  Sooner or later the charade ends and now they’re going through the blame game process and trying to avoid the consequences of their own decisions.  They are going through all sorts of contortions to try and avoid the pain of the inevitable “readjustment” process that must take place.  (how far the U.S. is down this road is of great debate)

Everyone always wants the upside but not the downside.  Does that sound like what actually happens in life?

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.

The Search for Yield

Posted May 10, 2012 by admin. tags:Tags: , , ,

Written by Nathan White, Chief Investment Officer, Paragon Wealth Management
Taken from Paragon's 2Qtr 2012 print newsletter.

In an environment where interest rates are at historic lows where does one go for yield?  As the baby boomers start to retire there will be a higher demand for fixed-income type investments of all types.  The effects of the

Volatility Unleashed

Posted January 26, 2012 by admin. tags:Tags: , ,
Light House


Written by Dave Young, President of Paragon Wealth Management
Taken from Paragon’s 4Qtr 2011 print newsletter

2011 was a very difficult year for investors. Even though it was one of the most volatile I have ever experienced, the year ended about where it began. The overall trend changed so many times that it was impossible to extract any gains from it.  A thousand point move up followed by a thousand point move down became routine. Since August, intraday daily swings averaged 261 Dow points.

The initial 2300 point sell off in July was triggered by our Treasury Bonds being downgraded for the first time in history. Next, the market became manic-depressive and entered an entirely new realm of volatility. The up and down gyrations were unbelievable and continued for almost six months. Over that time period there were over 20 significant market swings – with the market moving 400 to 1200 points at a time. It was impossible to lock onto a trend because there wasn’t one.

It was a war between the bears and the bulls. The bulls could not believe how cheap stocks were. Prices are close to where they were 12 years ago even though earnings have almost tripled since then. It doesn’t make sense for stocks to be trading at such low prices, based on their continuously increasing earnings.

On the other hand, the bears were scared to death with what was going on in world financial markets. Our treasury bond downgrade had all kinds of potential negative ramifications. No one knew for sure how it would affect the thousands of other bonds issued by U.S. corporations and municipalities. No one knew how it would affect stocks. The outcome of the downgrade held a lot of unknowns, which in turn created a lot of fear and selling.

An even bigger problem was the situation in Europe. The countries of Italy, Spain and Greece were on the verge of a financial meltdown. If a solution was not found to deal with their debt, then it was likely that those countries would default. If they defaulted, they would likely destroy Europe’s biggest banks. If the European banking system went down, it could potentially take some big U.S. banks down with it. That could trigger a major financial meltdown and have the potential to create a repeat of the 2008 meltdown all over again.

This was a high-risk situation with a lot of moving parts. Because it was outside the United States it was very difficult for U.S. investors to understand or assess what was going on. The lack of transparency made investors very nervous and ready to sell at a moment’s notice, which they did repeatedly during the second half of the year.

Usually when markets sell off we start buying aggressively because the downturns are temporary. This time the situation with Europe was different. Our research showed that unlike most downturns, if the worst case played out we could potentially see a rerun of 2008 or worse. That forced us to hold more cash than normal and to invest in defensive sectors for protection – just in case.

Our clients pay us to generate the best returns we can. They also hire us to do what we can to help protect their investments. Historically much of our excess returns have come from minimizing losses in rough markets.  This year our efforts to protect client accounts from a potential European meltdown reduced our overall returns.

To summarize what made 2011 so difficult:

  • The volatility was unprecedented and created endless whipsaws.
  • There was no trend to capitalize on.
  • High correlation between market sectors limits our ability to generate excess return. Usually there is a large range of varying returns among the 250 sectors we track, and we are able to identify those sectors that are growing the fastest. For the last 18 months the range of returns between the sectors has been much smaller than normal limiting our ability to benefit by identifying top performing sectors.
  • The extreme level of risk created by Europe forced us to be very defensive.
  • It was reported in October that 75 percent of all active managers had underperformed the S&P 500. In part that was because large cap stocks (the S&P 500) were the best performers in 2011. Many hedge fund managers got knocked around in the volatility as well. No one was immune with big names like John Paulson (down 35 percent) and Bill Gross (2010 manager of the year) underperforming 90 percent of his peers.

To be continued next week…

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.  

 

Europe Update: Socialism Is Expensive

Posted November 10, 2011 by admin. tags:Tags: , ,
Beautiful fall colors in the mountains

Written by Nathan White, Chief Investment Officer, Paragon Wealth Management

One of the reasons I have been so negative on government debt is that the reward, the interest rate offered, wasn’t enough to compensate for the risk at these low levels.  One of the problems with debt is that when rates are low too much tends to get borrowed.  After all, the financing costs are so cheap when rates are low that it seems like you can afford all sorts of things.  However, the fairy tale comes to an ignominious end the moment rates begin to rise and then the true ramifications and cost of holding significant debt become apparent.  The southern European countries were getting a free ride in the European union by obtaining lower borrowing rates than they otherwise would have been able to obtain.  Because they were able to get artificially low rates they borrowed to the hilt to finance the ever expanding entitlements states.  These socialistic policies encourage even lower levels of productivity because no one is incentivized to work.  The only way to sustain the charade is by borrowing even more.  Socialism is expensive.

With Italian 10 year rates now around 7% I believe you are finally seeing where their rates should truly be to reflect the risk of holding Italian debt.  With high levels of debt to GDP and a bloated inefficient public sector the higher current rate shows the true cost of how expensive their government has become and how it doesn’t take much to make it unsustainable.

With Europe still going through what some call the messy “sausage making process” of actually putting policies in place to deal with the debt crisis the markets will continue their volatile ways.

Let’s just hope that once the European debt crisis comes to whatever end that the same reckoning won’t then be focused on our debt situation here….Are you listening Super Committee???

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.

HAS THE TRAIN LEFT THE STATION?

Posted October 28, 2011 by admin. tags:Tags: ,
Train


photo courtesy of Train Chartering & Private Rain Cars

Written by Nathan White, Chief Investment Officer, Paragon Wealth Management

The Europeans finally decided to come up with a plan and not commit hara-kiri after all!  Now it is just a plan and the devil is always in the details but this crisis has been well within their means to tackle from the beginning if they would just stop being total imbeciles.  On top of the good news from Europe came a better than expected third quarter GDP report that shows a recession is not in the cards.  At 2.5%, GDP growth is still below trend but well away from a recession.  The consumer, who has been erroneously continued to be reported missing since 2008, came in strong.

All of this combined to help the markets make a decisive breakout today above the range of the last two months.  The market have moved so fast that with two days left it could put in the best October ever!  The rally has been so fast that it has surely left many behind creating the opposite of what is called a bear trap.  It’s basically a situation where one wants to buy but is hesitant because the market has just made a tremendous unlooked for rally and you get caught waiting for a pullback that never comes.  Finally, you give in and buy at much higher prices.

On October 4, the market briefly dipped into official bear market territory and sentiment was extremely negative.  I think it’s almost comical but representative of how the market likes to do the opposite of what is expected in  that the bear market lasted all of one day!  One month later and we’re almost 20% higher than the low of that day!

The first few days of the rally was caused mainly by short covering ahead of earnings season.  Earnings seasons unfolded generally strong again and without any major negative outlooks which kept the market moving upward.  Now as earnings announcements are ending the Euros finally made a plan and voila – the markets rocketed upward.  There are still quite a few shorts holding on to hope of a crash and investors who need to catch the train that left before they were ready.  The only stop before the end of the year could come from ruckus created by the Congressional Super Committee formed after the delightful debt ceiling battle which needs to find $1.5 trillion in budget savings by Nov 23.  I’m sure that process is just moving smoothly right along…..

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.

From Bear Market Territory To Market Rally

Posted October 13, 2011 by admin. tags:Tags: , ,
Fall Colors in the Utah Desert

Written by Nathan White, Chief Investment Officer, Paragon Wealth Management

The markets have moved up about 12% from the low on October 4th. That’s a huge move for one week! If you were paying attention to the headlines you probably missed the rally, but that’s been the nature of the market for the last two months. Twelve percent is what people used to expect in a decent year from equities! Trying to trade this market has been very painful to a lot of people.

Just as sentiment got really bad and the market dipped into bear market territory what did the market do? Go up. The market rallied as the Europeans started to talk the right talk and the prospect that corporate earnings will be relatively resilient. Now it comes time to walk the walk. The rally has been on light volume and from short covering which means it could be just short-lived. What is crucial now is to hold these levels near the upper end of the range.  That will depend mainly on the Europeans actually implementing actions to deal with their sovereign debt problem rather than just talking. It will also depend on corporate earnings holding up for the most part in terms of results and forecasts. If we hold these levels we could have a nice fourth quarter to end the year. The set-up is forming now will see how the follow through goes….

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.

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