Market Commentary - 4/19/2013: Maybe we are finally getting a healthy correction

U.S. and other global stock markets have been on a tear so far in 2013. Until recently, it seemed that nothing could halt the advancement of stock prices. Whatever the bad economic news was the stock market just shrugged and went forward. Accordingly, in the past commentary I noted that I was looking for a "healthy" correction.

Well, as we enter the second quarter of 2013, there has not been any earth shattering or dour economic reports. However, it appears that investors may be taking a breather and some recent economic reports about slower economic growth in China and other regions has put a damper on stock prices. As such, we are beginning to see the stock market actually incur declines for more than one day, and I believe this is actually a good thing. 

There is an astounding amount of cash that is not yet invested or as they say, "sitting on the sidelines." As such, there are many bargain-oriented investors that are ready to invest, but they just need the market to cooperate via lower stock prices in the near term. I am in agreement and look forward to continued price declines that allow for new funds to be put to work at what most us feel are more comfortable prices. I don't believe the bull market is dead, but he may need to catch his breath for a much longer ride. 

Has gold and silver lost their luster?! 

GoId and silver prices have tanked over the last week or two for a variety of reasons.

Both precious metals have been an incredible bull market with huge price run ups over the last decade, and any short-term declines would be a reason for some precious metal investors to take profits.

Fears arose that Cyprus (a country in the European Union) may need to sell some of its gold reserves to satisfy their bailout requirements. Central Banks across the globe have been net purchasers of gold and silver over the last several years. Thus, even though Cyprus may be an isolated incident, the possibly of other Central Banks selling some of their holdings created a wide net of fear across markets.

Signs of global inflation are easing and world economies are slowing. As such, much of the gold investing has been driven by these expectations of higher inflation and economic growth. If investors see these events not occurring in the near horizon, then some of them get disenchanted with gold, and they sell it.

Gold and silver has become a favorite of many large hedge funds, who can easily buy or sell the precious metals via exchange traded funds (ETFs). ETFs represent shares of gold and silver bullion actually stored in various bank vaults around the world. Thus, hedge funds are able to quickly accumulate or sell large quantities of the precious metals via electronic trading, without ever having to touch, transport or worry about securing their holdings. Many hedge funds are only interested in short-term holdings and quickly sell when prices start to go against them, which accounts for some of the price decline.

Ironically, demand for gold and silver coins and jewelry has actually increased in the near term. The Wall Street Journal reported yesterday that many industry players from gold refiners, to mints and actual gold retail shops are reporting very strong demand for the precious metals as the prices have dropped recently.

Bottom line, gold and silver are precious metals that are often held as a hedge or insurance against devaluing currencies. With the United States and other countries printing and releasing a record amount of their respective dollars into the world markets, at some point we may see a decline in their values. We all know that the more you make of something, then the lower its value over time. As a result, I don't think gold and silver prices will nose dive into oblivion. Mainly because they are still a viable alternative to devalued currencies, which we may very well see occurring in future years. Consequently, precious metals can make sense for a small portion of your portfolio. 

Apple investors have lost that loving feeling.....wooooooo!  

Apple is a good company with very innovative products and services. Believe me, this is very hard for me to say, since I've been a staunch PC and Android guy who’s fought against becoming one of the "cult." I must admit in our household we have an iPad mini, iTouch , my son uses iTunes and we use the Apple TV box. However, that is as far as I willing to go, for now!

Basically, Apple has executed its business and product plans well and consumers, especially younger adults, are huge fans. The company is hugely profitable, and each new product announcement creates its own buzz. Unfortunately, investors of all sizes from individuals to hedge funds and large institutions took a liking to the stock and created a frenzy pushing the price of its stock from approximately $160/share in April of 2008 to a high of over $700/share in September of last year. As I am writing, Apple is now trading at approximately $392/share. For those investors who've owned APPL for five years or longer, they are still sitting on nice gains. Unfortunately, I know several friends who purchased Apple in this high $600's. Consequently, they aren't feeling so good.

Apple is now behaving like a normal stock, in that investors became euphoric about its prospects and pushed its price to unrealistically high levels and now it's being punished by what appears to be an overly pessimistic cloud hovering over it. Please note that I am not recommending that you buy or sell the stock, but I just want to point out that Apple is no longer invincible. Investors have become less enchanted with Apple than their loyal customer base. This is just another example that illustrates that stock prices are often driven by emotion and not fundamentals, and we must try and separate ourselves from the two to be successful. 

Money and Math, and how they are used in the everyday world. 

Money and MathEarlier this month I was invited to speak with 6th grade students at an Overland Park middle school regarding how I use math in my daily life. Toan, my director of operations, created an great power point presentation that illustrated how we use math in calculating retirement projections, tax withholding amounts, college planning and the power of compound interest.

Both the students and teacher had questions. I really enjoyed making the presentation and interacting with the students. Also, compound interest seemed to be the most well received of the topics covered. I've had several parents tell me that their son or daughter came home and mentioned what they learned about compound interest and how they want to take advantage of it so they can see their money grow. Some even said they plan to start investing soon so they can become millionaires. I like their enthusiasm!

 

Quotes  

"Never measure the height of a mountain until you have reached the top. Then you will see how low it was."

Dag Hammarskjold

"Youth is not a time of life; it's a state of mind."

Author Unknown

"Noble deeds and hot baths are the best cures for depression."

Dodie Smith

 

Tony Moeller, CPA

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.

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