Thursday, December 31, 2009

Happy New Year

The January 2010 edition of  THE GERRITZ LETTER has been posted. Please click the link below to view it right now.

All of us here at Gerritz Wealth Management, Inc. wish you a very Happy New Year and a prosperous 2010!

Wednesday, December 16, 2009

Market Comment 12 16 09

The stock market is generally in a trading range with a positive bias. Junk bond funds are trending up, but some other bond/income funds have weakened due to recent weakness in Treasury bonds. Greater than normal crosscurrents are in play during the end of the year and the first few trading days of the new year, which can lead to significant volatility at the beginning of the new year.

In the December issue of The Gerritz Letter I pointed out the negative market technicals at the time. The technicals have since improved and has resulted in a sideways trading range market rather than a correction.  The S&P 500 has been in a trading range since Nov. 13th. View the chart below.

(Click on chart to enlarge it for easier viewing)

I recently estabilished a position in Putnam Diversified Income Fund (PDVYX) for most accounts. This fund is in a low volatility uptrend and pays a very nice dividend.

Sunday, December 13, 2009

Jim Rogers Betting On US Dollar Rally, Would Buy More Gold Around $1000

Jim Rogers Betting On US Dollar Rally, Would Buy More Gold Around $1000

Jim Rogers was on Tech Ticker and ReutersTV (Reuters: Investor bets on USD rally) recently and he's betting on a US Dollar short squeeze. He also said commodities will do well if there's massive growth, a currency crisis, continued money printing or WW3. He told Reuters he'd buy more gold around $1,000.

"When everybody is pessimistic about something it's usually time to buy that. Now I cannot give you any fundamental reason..... but in the last couple months I've been accumulating more dollars. I think there's probably going to be a rally. If it happens I hope I'm smart enough to sell it somewhere down the line. If it doesn't happen it will collapse and I'll panic like everyone else and dump." (Reuters Interview)

(click on link below to view Jimmy Rodgers Video Interview)

Friday, December 11, 2009

How to Predict the Price of Gold

The following article discusses the relationship between the value of the dollar and the price of gold. At the moment the US Dollar has broken it's recent down trend and is heading higher. This sudden trend reversal has caused a correction in gold. Longer term if the dollar resumes it's downtrend and if inflation becomes a factor gold may sparkle again.

How to Predict the Price of Gold

Jeff Clark, Editor, Casey’s Gold & Resource Report

Long-term readers know that gold moves inversely to the dollar, meaning if the dollar drops, gold tends to rise (and vice versa). This happens with about 80% regularity. But what many gold writers haven’t acknowledged is the leveraged movement our favorite metal has demonstrated this year to the world’s reserve currency.

The U.S. dollar index, a six-currency gauge of the greenback’s value, has dropped 7.8% so far this year (as of December 3). Meanwhile, gold is up 38.7% year-to-date. In other words, for every 1% drop in the dollar index, gold has risen 4.9%. If that approximate percentage holds over time, one can begin to estimate what the gold price might be if you know what the dollar might do.

While the dollar is likely to bounce at some point, making gold correct, the long-term fate of the dollar has already dried in cement. If the dollar were simply to return to its March 2008 low of 71.30 next year – a 4.6% drop from current levels – this would imply a rise in gold of 22.5% and a price of about $1,478 an ounce.

The long-term scenario is more dramatic. If you believe the dollar will lose half its value from current levels, this would imply a gold price around $4,164. If you believe it will lose 75% of its value, gold would reach about $5,642. Doug Casey has called for a $5,000 gold price; if he’s right, guess what that implies for the dollar?

And think about this: these calculations ignore what else might “show up,” such as when price inflation shows up in the economy, the greater public shows up to buy gold, or the Chinese don’t show up at an auction. Could $5,000 gold be too low?

Market comment 12 11 09

The stock market rallied yesterday, but all the major indexes are still in trading ranges. Movement within a trading range is usually not very significant, so I don’t consider this short-term strength to have any longer-term significance. In the meantime, junk bonds funds continue to slowly trend higher, so I recommend ignoring the day-to-day volatility in the stock market while we continue to hold uptrending low-volatility bond/debt funds. We continue to use moving average stops to protect our bond fund positions.

Thursday, December 10, 2009



Pimco Total Return Fund (PTTAX) paid out a 12 cent capital gain yesterday. That alone accounts for the price drop yesterday. All GWM clients are currently reinvesting dividends, so this will merely add to the shares investors currently own.

Pimco closing price on Dec. 9, 2009.

Market comment 12 10 09

The stock market remains in a narrow trading range and junk bond funds are trending up with very low volatility. High yield bonds are yielding more than 9% and are slowing appreciating with very low volatility. We use our moving average stop discipline to limit risk. We will ride this wave until until the trend ends.

Wednesday, December 9, 2009

U.S. Dollar Soars To A Five-Week High: What Now?

U.S. Dollar Soars To A Five-Week High: What Now?

"Fundamentals" can hardly explain the dollar's recent strength

By Nico Isaac

Wed, 09 Dec 2009 16:15:00 ET

Long since thought of as "the rotting corpse" of the currency markets, the U.S. dollar reawakened to new life this week by rallying to its highest level in more than a month. For many -- namely those affiliated with the financial mainstream -- the dollar's revival came as a huge surprise.

Reason being: The two main fundamentals that supposedly drove the dollar to its 2009 "deathbed" were still very much in force. To wit:

The Interest Rate Factor: According to the usual pundits, the persistent, easy money policies of the Federal Reserve have held the dollar's head below water. Those being: Ten rate cuts in 12 months to a historic low of 0%. Here, a recent Wall Street Journal writes:

"Ultra-low rates have weighed on the dollar as investors use cheap dollars to fund bets in riskier assets, such as the euro and other high-yielding currencies... For [a sustained change in the dollar's trend], the Fed would have to be moving clearly toward an exit of its extraordinary easing measures."

Flash to December 7: That day, the Federal Open Market Committee released a very "dovish" periodic statement in which chairman Ben Bernanke reaffirmed his commitment to an "extended period of low rates." YET -- the U.S. dollar has continued to soar.

Next, the Economic Factor: Here, I'll let the following news item do the talking: "For most of 2009, the paradigm in the currency markets has been that good economic data was bad for the dollar as investors shun the low-yielding greenback... on hopes of a faster recovery." (Wall Street Journal)

YET -- in the wake of a recent, better-than-expected Jobs report, the dollar experienced its strongest single-day rise in a year.

Nico Isaac

US Dollar Index Chart -  12 09 09 (below)

(Click on chart to enlarge it for easier viewing)

For a longer term perspective, view the Dollar index chart below.
(Click on chart to enlarge it for easier viewing)

The US Dollar is still to the premier safe haven for the world when fear starts to rattle the foreign markets. Dubai and now Greece and Spain are nearing default on their debt. This fact plus the better than expected jobs report issued last week has sent the Dollar higher. We will have to wait and see if the US Dollar has begun a new uptrend or if this is just a blip and the dollar resumes it's down trend.

Market Comment 12 09 09

The stock market has been moving sideways in a narrow trading range for the past month.  Trading ranges are always due to a balance between buying and selling pressures. A strong move is required to establish a new trend direction.

The current advance shows signs of losing upside momentum. This may be due to portfolio managers wanting to lock in profits for the year. We should expect a lot of position shuffling and increased volatility in late December and early January.

We will maintain our relatively conservative posture until the market breaks out of the current trading range.  If an uptrend is established we will add equity position.

Tuesday, December 8, 2009

Market Comment 12 08 09

The US Dollar Index continues to rise. It has broken above its 50 day moving average.

Gold and the US Dollar are currently inversely correlated. Consequently gold is correcting. I have a sell discipline based on price action. Since the Dollar has decisively pierced it's 50 day moving average I have sold our gold position.

Friday, December 4, 2009

Market Comment 12 04 09

The numbers from the November employment report issued this morning were much better than expected. The market has rallied by better than 100 Dow points. If the gains in the stock market hold today the market will have completed an upside breakout on improved breadth and volume. Gold and the dollar have retreated, breaking the recent link between the dollar and market. This is a positive sign.

Wednesday, December 2, 2009

Market Comment 12 02 09

The stock market moved higher in November, but with deteriorating  fundimentals. Volume steadily declined and market breadth was poor as small caps underperformed large caps. During the past two days, those negative internals have reversed. Volume and breadth have improved significantly and small caps have outperformed large caps.

Tuesday, December 1, 2009

November 09 Market Performance

(Click on chart to enlarge it for easier viewing)

Dubai mini-crisis has run its course

The mini-crisis resulting from Dubai’s debt problem last week appears to have run its course. The stock market may now resume its bull market uptrend.

Monday, November 30, 2009

US Dollar Retreats as Easing Fears of Dubai Default Boosts Risky Assets

LONDON, Nov 30 (Reuters) - The dollar weakened on Monday after the United Arab Emirates said it would stand behind banks in Dubai, soothing concerns about a looming debt default and prompting investors to sell dollars for other currencies and assets like stocks and commodities.

Asian stocks and U.S. stock futures rose after the UAE central bank pledged to provide emerging support to the region's banks and as Dubai's oil-rich neighbor, Abu Dhabi, offered to provide selective support to Dubai companies.

Sunday, November 29, 2009

Market Sector Performance Last Week 11 27 09

The performance chart from the Wall Street Journal Online shows how different global financial markets performed during the past week.

(Click on chart to enlarge it for easier viewing)

Source: Wall Street Journal Online, November 27, 2009.

Thursday, November 26, 2009

Market Alert 11 26 09

Dubai Announces a Delay in Debt Repayment

US markets are bracing for a shakeup Friday after investors fled risk assets globally on concerns about Dubai's debt rescheduling.

Markets worldwide reacted to concerns about bank exposure to the debt, particularly in Europe, and fears it is a signal of greater problems in emerging markets.

US markets were closed, but the dollar was initially lower but bounced and traders said stocks pointed to a sharply lower opening on Friday.

(Click on chart to enlarge it for easier viewing)

Click on Link below to view video of news report

Monday, November 23, 2009

11 23 09 Market Comment

Last weeks 3 day market slide turned out to be just a minor correction. The S&P 500 has broken the 1100 barrier once again. The US Dollar has resumed its downward trend.

High yield bonds should follow the up move shortly.

Since the world currencies are the focal point of the current market it looks like gold should be included in more agressive portfolios.

Friday, November 20, 2009

11 20 09 Market Comment

A number of technical indicators are pointing to a short term pullback in the stock market. The US dollar has begun to strengthen a bit after a seven month slide, the Russell 2000 index (small company stocks) have been underperforming, and sentiment has turned a little negative.

I sold EWZ today, making a small profit. Taking some risk off the table at the moment is prudent. EWA may be next; we will have to see what happens next week.

I still believe the dollar will continue is decline after a brief rally. As you know the dollar and the stock market have been intertwined.

If we do get a significant correction I will take the opportunity to add some equity positions at more reasonable prices.

For now our low volatility bond and income funds are doing fine. Conservative investors need not worry about the day to day fluctuations of the stock market.

Tuesday, November 17, 2009

U.S. Economy Will Dodge a Double-Dip Downturn

Below is a reprint from an article by Don Miller, Associate Editor of Moey Morning.

U.S. Economy Will Dodge a Double-Dip Downturn, But Won’t Escape Unemployment Woes During 2010 Jobless Recovery

[Editor's Note: This is Part I of a two-part story that examines the U.S. economy's prospects for 2010. It's also the leadoff story for Money Morning's annual "Outlook" series, which will forecast the prospects for gold, oil, banking, and top investing trends in the New Year.
By Don Miller
Associate Editor
Money Morning

Historically, the U.S. stock market has been one of the key leading indicators of a U.S. economic rebound.
With the Standard & Poor’s 500 Index up more than 60% from its March lows – and the Dow Jones Industrial Average up nearly 40% – prognosticators are finally confident that the U.S. economy will dodge the “double-dip” recession that has been the focus of much fear since the Bush and Obama administrations launched their financial counterattacks on the worst financial crisis since the Great Depression.

But those same forecasters are reluctant to forecast a sharp economic rebound for 2010. In fact, as opposed to a classic “V-shaped” economic recovery that would accelerate as the year goes on, many economists are predicting that the rate of growth will slow as the New Year unfolds.

Forecasts from Standard & Poor’s Inc. (NYSE: MHP) and Goldman Sachs Group Inc. (NYSE: GS) illustrate this outlook. S&P recently projected average GDP growth of 1.6% for all of 2010, while top Goldman Sachs economists expect to see the U.S. growth rate decline from 3% early in the year to 1.75% by the fourth quarter.

“We don’t expect a V-shaped recovery; in fact we think that 2010 is going to be a bit slower in terms of annualized GDP growth than the second half of 2009,” Goldman Sachs Chief U.S. Economist Jan Hatzius said during a recent speech in New York City.

For analysts and economists who play the forecasting game, 2010 promises to be one of the toughest challenges in decades.

Unemployment has pierced the psychologically daunting 10% level, placing U.S. joblessness at its highest level in a quarter century. Serious questions remain about the strength of the country’s banking and financial systems. The U.S. dollar is under siege and inflationary concerns are at their highest levels in years. There’s massive uncertainty about the nation’s residential and commercial real estate markets. And even the stock-market rebound – one of the strongest in history – is considered suspect by some analysts: They worry that federal stimulus money and the U.S. Federal Reserve’s “zero-interest-rate policy” has forced bearish investors to become reluctant bulls.

Among the difficulties would-be forecasters currently face economists face is the fact that 4% of the economic growth in recent months is attributable to temporary factors, most notably the replenishing of inventories and government fiscal stimulus, Goldman’s Hatzius said. Those factors are likely to diminish by the second half of 2010, due to high unemployment, budget-conscious consumers, and overcapacity in the manufacturing sector and housing markets.

Despite these obvious difficulties, the outlook for 2010 is far from dismal. Among the bright spots:

• The stimulus seems to be having its intended effect – one reason the odds of a double-dip recession remain remote.

• The U.S. housing market – a crucial element of the consumer sector – is showing signs of bottoming out.

• The weak U.S. dollar is making U.S. exports highly competitive, giving a much-needed boost to American manufacturers.

• With their reluctance to hire, businesses are clearly operating in a highly cost-conscious zone – a reality that could bode well for corporate profits, and for stock prices.

• And the overall outlook for the U.S. economy is much better than it was a year or 18 months ago, and actually continues to improve – albeit slowly – a reality that can feed on itself to further bolster growth.

In this leadoff story in Money Morning’s Third Annual “Outlook” forecasting series, we’ll take a look at overall expectations for the U.S. economy for the New Year, will consider four key challenges, and will give you our take on each one. The areas that we’ll explore will include:

• Economic expectations and the odds of a double-dip downturn.

• The odds for maintaining growth with a “jobless recovery.”

• The outlook for business investment and spending.

• And the risks and rewards of current central bank policies.

Let’s take a look …

Handicapping U.S. Growth in 2010

A new survey concluded that top economic forecasters have grown in confidence that the U.S. recovery is sustainable. But those analysts also expect that growth will fall short of the typical post-recession rebound, the Blue Chip Economic Indicators newsletter reported in its November issue.

The U.S. economy should expand 2.7% next year, the consensus estimate of 52 economists polled by the newsletter. That’s an upward revision from the consensus prediction of 2.5% made just one month before.

“The major uncertainty surrounding the outlook for growth next year involves the degree to which private demand accelerates as the positive contributions to GDP from reduced business inventory liquidation and fiscal stimulus play out,” the newsletter said.

Those factors alone pose some significant challenges to a robust rebound. Add in the near-certainty that this recovery will be a jobless one – as well as the fact that most economists believe that U.S. growth will slow, and not accelerate – as 2010 progresses, and it might be overly optimistic to expect a growth rate of 2.7%, which is how well the economic often performs even during healthy periods.

How China Is Axing the U.S. Dollar…

Money Morning Chief Investment Strategist Keith Fitz-Gerald is forecasting growth of, at best, 2.0% in 2010, a key reason he continues to tell investors to look abroad for some of the most-profitable investment plays.

The U.S. economy “will be lucky to do 2.0% ” next year, Fitz-Gerald said. “The economy faces some very difficult challenges. There’s a slight chance – depending on what happens with some outside factors – that the U.S. could do 2.5%, but I really doubt it. China could actually pull us along [to higher-than-expected growth], but those are some long odds.”

That’s not to say that 2.0% growth is bad news. That’s more than enough to negate the odds of a double-dip recession. Indeed, after reviewing U.S. economic history all the way back to the 1850s, Deutsche Bank AG (NYSE: DB) economists recently found that double-dip recessions are exceedingly rare.

And Money Morning Contributing Writer Jon Markman notes that when these double-dip downturns do occur, they happen under circumstances quite different from the ones that we face today. Reprised recessions usually occur in concert with a fight against inflation.

“A repeat of the 1980s just isn’t in the cards,” Markman said.

Money Morning’s Outlook: Overall, the likelihood is that the U.S. economy will experience slow GDP growth. In terms of the average growth rate for the year, investors are most likely looking at a range of 1.0% to 2.0% for all of 2010, as a protracted jobless recovery extends the housing and banking crisis, puts a damper on wages, reduces consumption. And that growth rate will decelerate as the year progresses, meaning that it’s measure investors should watch closely.

U.S. Joblessness Will Stifle Consumer Spending

As we’ve all learned as far back as Econ 101, the U.S. marketplace is chiefly consumer driven. Historically, consumer spending spurred 60% of U.S. growth. In recent years, that number has surged as high as 70%. Given the U.S. economy’s avowed consumer focus – coupled with the near-certainty that we’re facing a jobless recovery – investors who are hoping for stronger-than-expected growth would best keep the champagne on ice, according to economist Joel Naroff.

“We need households to become a little more confident and businesses to start thinking about tomorrow so we can transition out of the government- and Fed-supported economy into a private-sector recovery,” Naroff, president of the Holland, PA-based Naroff Economic Advisors, said in a note to investors.

To that end, Naroff is concerned about the effect a jobless recovery could have on consumer spending.

“Can consumers save the day? Only if incomes grow solidly and that is not going to happen … businesses have some room to expand without hiring lots of new employees,” Naroff noted. “It could take four to five years for the unemployment rate to get back to full employment. There is little reason to expect that happy times are here again.”

The U.S. unemployment rate in October pierced the psychologically important 10% barrier for the first time since 1983, as employers made deeper-than-predicted payroll cuts.

It’s no surprise, then, that U.S. consumers in September cut their spending for the first time in five months, reducing their outlays for products and services by a hefty 0.5%.

Only one other time since World War II has the unemployment rate topped 10% – between September 1982 and June 1983. It hit 10.1% in September 1982, moving up from 9.8% the month before.

The economy, as measured by gross domestic product (GDP), was basically flat in summer 1982. But the economy at that time was actually getting ready to recover.

Then the economy began to surge in early 1983, fueled by tax cuts and, more importantly, substantial interest-rate cuts by the Federal Reserve. By the end of 1983, the unemployment rate was down to 8.3% and dropped to 7.3% in 1984 and 7.0% in 1985.

But that was then and this is now.

Although the official unemployment rate hit 10.2% last month, the employment outlook is actually much worse: If you factor in part-time workers who’d prefer a full-time position, and people who want work but have given up looking, the “real” unemployment rate is actually a record-high 17.5%.

That means that more than 16 million people are now out of work, compared to 6 million in 1982. In July – the last month the government released statistics – there were more than six officially unemployed persons for every job opening. Historically, the ratio is closer to 2-to-1.

What’s worse is that productivity is increasing as employers are successfully getting their existing staff to produce more in fewer hours – making it less likely they will start hiring.

Any improvements will come slowly. In the Blue Chip Economic IndicatorsNovember issue, 52% of the economists surveyed said the unemployment rate won’t fall back below the 7.0% level on a sustained basis until the second half of 2013 – and it may take longer than that.

Money Morning’s Outlook: The recession may technically have ended, but for the millions of unemployed workers the hard times are far from over. Given that almost one-fifth of the U.S. work force is unemployed or underemployed, don’t expect consumers to step up and step in if stimulus spending falls short, or ends. The upshot is that, from this vantage point, GDP growth for the New Year is likely to be severely constrained.

11 17 09 Market Comment

The stock market posted strong gains yesterday. High yield bonds were also up. Given the delay effect in high yield bond funds, they should also be up today regardless of the stock market direction.

The stock market is currently taking its lead from dollar weakness or dollar strength. If the dollar goes up the - market goes down and if the dollar goes down - the market goes up. This also is the case with commodities. The dollar has fallen so much lately that it is now time to watch for a dollar rebound. This rebound would be a negative for stocks and commodities. I will be taking profits in Brazilian and Australian ETFs if the dollar drops a bit more.

Conservative investors are primarily invested in low volatility bonds funds and need not be concerned about the day to day fluctuations of the stock market. All the bond funds we hold remain in an uptrend.

Thursday, November 12, 2009

1 12 09 Market Comment

Large cap stocks have been outperforming. Small and mid cap stock have underperformed lately. The declining volume and the poor performance of small caps relative to large caps should be taken as a warning of potential trouble for the stock market.

Fortunately, most of the low-volatility bond/debt mutual funds in which we are invested are still trending up.

Tuesday, November 10, 2009

Australian Dollar Forecast Nov 10

Our slightly more aggressive accounts have a 5% position in EWA (an Australian ETF). It acts as a hedge against the falling US Dollar and is generally a commodity play. The following news excerpt is useful information.

International Business Times Excerpt:

Australia: The Australian Dollar has opened another US Cent higher this morning, breaking through USD0.9200 after six consecutive positive sessions locally.The positive weekend sentiment on the AUD has been maintained and managed to outweigh the mixed data that was released yesterday on the Australian economy.

The overall impression is positive on the economy still. The labour market news saw the ANZ total job advertisements fall by 1.7% in October but the key take out is the annual sales are now improving.

These statistics are closely related with employment growth and there are pretty reliable signs the downturn in the official ABS official employment series may already be complete.

Housing demand surged in September with some of the strongest numbers seen.

So the scenario at the minute continues to be Australian Dollar news, more so than Greenback developments.

The US Dollar still seems soft, and until unemployment improves in the US, one thinks the A$ will continue its upward moves.

Commodity prices are key as always, with the Asian region's importance paramount to the Reserve Bank of Australia's views on the strength of the Australian economy.

LME Copper rose supported by a weaker US Currency, and reports the G20 would keep with current economic stimulus measures, potentially helping boost metal consumption, with further gains with lead, aluminium and nickel rising but zinc filled.

We see the AUD trading between 0.9250 and 0.9310 today and with a pretty bullish outlook.

Majors: The US Dollar had a mixed session after the G20 meeting increased speculation US interest rates will remain very low well into next year.

You have to ask yourself, why would the USD's steady decline stop? What would be the reason? It is becoming clear with recent FOPC and Fed Reserve statements that interest rates are on hold at record low levels until employment picks up in the US and if you're abetting person, mid 2010 seems a fair call.

So until then, the Greenback seems weak and will not heed the words of major OECD Finance Ministers complaining their currencies have appreciated too far and are placing too much pressure their export competitiveness.

These are bullish comments on our Australian position.

Monday, November 9, 2009

11 09 09 Market Comment

It appears likely that the recent correction is over. If that is the case, junk bonds should also resume trending up within a day or two, but probably not at the unsustainable pace of earlier in the year. Conservative investors may have to learn to be satisfied with 15-20% annualized rates of return for a while!

Did Modern Portfolio Theory Survive the Bear Market?

The following in an excerpt from an article by Arijit Dutta, associate director of mutual fund analysis with Morningstar.

 Two bear markets in one decade have shaken investors' faith in the tenets of Modern Portfolio Theory and the asset-allocation strategies the theory spawned. Critics say that blind faith in MPT led to lopsided asset allocation. The theory did not properly account for systemic risk, which caused investors to allocate too heavily in stocks, and now their portfolios will need years to get even.

Useful but Not Guaranteed

 Some investors leaned too heavily on MPT models as though they were all they needed, but those models still serve a purpose. Diversification is still a great way to reduce risk and earn a higher level of return in the long run. Studies show that asset allocation is still of tremendous importance, even after last year's meltdown.

In fact, most constructive ideas about improving asset allocation retain the basic framework of MPT. These ideas suggest practical tweaks to the theory, rather than any radical remedies. For example, one idea is to improve risk measurement. This means less reliance on the normal distribution and more on other distributions or approaches that entertain the possibility of extreme losses. A combination of lower allocation to especially risky assets and hedging tools can then be used to protect the portfolio. Another suggestion is to engage more in tactical or dynamic asset allocation. Rather than stay with a static allocation to equities, say, this approach involves shifting the mix based on macro views or valuation analysis.

By Arijit Dutta, associate director of mutual fund analysis with Morningstar.

Friday, November 6, 2009

11 06 09 Market Comment

The stock market experienced a mild correction in the last half of October. It has rallied back to recapture roughly half that decline. We will watch the market closely in the next few days. If the market can shrug off this morning’s disappointing economic news (10.2% October unemployment report) and continue to rally, the major indexes could challenge the recent uptrend highs within a week or two setting the stage for an important end-of year rally. If the market sells off from its current level, however, we could quickly retest the recent lows. Penetration of those lows would send a powerful signal to many portfolio managers that it is time to lock in gains for the year.

High yield bond and other low-volatility uptrending bond/income funds have weakened. Some have declined a little, but few have declined enough to trigger reasonable sell stops. For the moment we will not be adding new positions to any high yield bond funds or stock funds. We will wait to see how the market behaves for now.

Tuesday, November 3, 2009

October Market Scorecard

Monthly Market Performance Report

High Yield Bonds (aka: Junk Bonds) are the best performers for the month as well as for the year.

Friday, October 30, 2009

10 30 09 Market Comment

 Yesterday the market reversed its recent downtrend and was up sharply. The trough formed by that advance is now important support. As long as the major indexes hold above that level, the decline from the mid-September highs will be properly viewed as just another typical bull market correction. If yesterday’s trough is decisively penetrated however, the odds favor a much deeper decline. It is probably going to take a few days for the market to give us enough information on which to make a reasonable guess about the near-term direction of stock prices.

 Many junk bond funds were flat or down – even though the stock market was broadly up. That is a normal delay function that we frequently see expressed in the junk bond market. The mutual funds got hit with redemptions on Wednesday and had to sell bonds yesterday. Hopefully, they were able to get all the selling to cover redemptions completed yesterday. If so, junk bond funds may resume their uptrend and move higher today.

Thursday, October 29, 2009

09 29 09 Market Comment

The stock market accelerated its downside move yesterday and is now deeply oversold. Such oversold conditions usually trigger some type of a bounce – and we’re getting a big bounce today. The nature of this bounce will give us some clues about the market environment, but it is what follows that bounce that will really be important.

Downtrends are made up of strong down-legs interrupted by weaker up-legs. When the next up-leg in the stock market develops, it will establish a trough that will mark the bottom of a strong down-leg. It is highly unlikely that the first up-leg following that trough will erase all the drawdown of the current down-leg. That means we will likely end up with a weaker up-leg following the current strong down-leg. What happens after that will determine if the current correction morphs into a significant downtrend.

The trough formed by the next up-leg is the key. That will be very important support. If it is subsequently penetrated in a decisive manner, we can logically conclude that the stock market has completed a significant topping pattern and established a downtrend. If the stock market holds above that trough, we will have to watch and see if a pattern of stronger up-legs interrupted by weaker down-legs (an uptrend) reemerges.

Most junk bond funds declined modestly yesterday. That is not surprising since junk bond funds typically follow the major trend of the stock market, but with a lag and with little of the day-to-day volatility. These funds may move lower again today – even if the stock market rallies. That is the lagged effect that helps make these funds so easy to time. We shouldn't worry about a small decline. I have moving average stops in place to protect us from the downside. With junk bond funds the day-to-day volatility in the stock market can be ignored in the short term. If stocks have topped and entered a significant downtrend, we may start to hit some sell stops in junk bond mutual funds in a week or two. If the correction in stocks is about over, junk bond mutual funds will likely turn higher following a modest decline.

We can’t control what the market does, but we can control how we react to what the market does. Being invested in junk bond and similar mutual funds, there is nothing to do at this point except to make sure you have stops set.

Tuesday, October 27, 2009

Las Vegas meeting with Michael Price

On Oct 17th Christopher and I spent a day with Michael Price and about 70 other investors and advisors. It was a great opportunity to learn from the master. As you know Michael is someone I admire very much. He is most generous when it comes to sharing his insights as well as his superb money management techniques and strategies. He personally manages over $200,000,000.  He works out of his house in Florida and has just two employees; his daughter and son-in -law.

Steve Gerritz, Michael Price, Chris Gerritz

The meeting was held at the Venetian on the Vegas strip. It is a beautiful hotel. Chris said  "I have been to Venice and parts of this hotel looks just like the real thing."

In the upcoming November issue of The Gerritz Letter, I will  share the highlights of my meeting with Michael.

Monday, October 26, 2009

10 26 09 Market Comment

The market appears to have entered a period of consolidation following a strong uptrend that peaked Oct. 15th. This correction does not look any different from the others that have occurred since the market bottomed in March. Moreover, our more conservative investors are invested in Bond/Income funds, most of which remain in a very low volatility uptrend.

More aggressive clients have a relatively small exposure to stock funds at this point and should not be overly concerned with what appears to be a garden variety correction. If it turns out to be worse than expected, we are protected by our trailing stop strategy. Sector fund trailing stops set at 12% and diversified stock fund trailing stops set at 8%.

Wednesday, October 21, 2009

10 21 09 Market Comment

The stock market is bouncing back after a bit of sideways action the last few days. There is not much threat of the party coming to an end until the Fed begins withdrawing the excess liquidity they injected earlier this year. Of course a correction could develop for whatever reason, but it would probably be short lived.

Our High Yield funds continue their low volatility uptrend. We continue to deploy our 50 day moving average stop loss risk management strategy.

For some more aggressive accounts I have added a small position in an Australian and Brazilian ETF; each of these amount to just 5% of account net worth. Moving average stops do not work well with stock funds or more volatile sectors like these. For diversified stock funds we use a trailing stop of 8% and for sector specific ETFs we use a 12% trailing stop. We do not want to have the position sold just to see it bounce right back.

*  A trailing stop continuously moves the sell stop price up as the price of the security goes up. If the price moves down from its high by the predetermined percentage, it triggers the sale of the position. This allows the position to run on the upside while limiting the downside.

Thursday, October 15, 2009

10 15 09 Market Comment

The bull market resumed yesterday as the averages blew through short term resistance. Google reported better than expected earning after the bell today. For now the uptrend is intact. Muni bonds and junk bonds are moving in opposite directions. Junk up and muni's down. We will have to see which sector will lead the other.

Tomorrow Chris and I fly to Vegas. I might make my first attempt to tweet on twitter.

Wednesday, October 14, 2009

10 14 09 Market Comment

The Dow Jones Industrial Average closes above 10,000 for the first time since Oct 3, 2008.

My son, Christopher Gerritz, has passed his Series 65 Securities Exam and is now officially a Registered Investment Advisor Salesperson. Congratulations Chris!

Christopher and I will be going to the Venetian in Las Vegas to meet with Michael Price and a group of about 70 investors and advisors. This will be an all day meeting with some of the best minds in the business. In next month's newsletter I will definitely be discussing what transpires. What happens in Vegas doesn’t necessarily have to stay in Vegas.

Tuesday, October 13, 2009

10 13 09 Market Comment

While we are still off the mid-September highs, the market has been moving back up for last 6 straight days. Futures indicate a slightly higher open today. Also, Intel and Johnson and Johnson report earnings today; we will have to see what the impact will be.

Junk bonds continue their low volatility uptrend.  Muni bonds have been giving back a little of their previous months gain; I am looking for a possible buying opportunity.

We continue to use 50 day moving average stops to protect our positions.

Thursday, October 8, 2009

10 08 09 Market Comment

Stock suffered a relatively minor correction in mid-September. The market is now once again in an uptrend. If this trend persists, the high yield bond funds we own should move up along with the stock market. Bond funds remain in a low volatility uptrend.

The All Ordinaries Index (Austrailia's equivalent of the Dow Jones Industrial Average) is surging. I may make a small allocation in an Austrailian fund or etf shortly.

Tuesday, October 6, 2009

10 06 09 Market Comment

The Reserve Bank of Australia raised its benchmark interest rate to 3.25 percent, Tuesday, up from three percent. The Reserve Governors say "with Australia's economic growth on track and the risk of a serious contraction past, it is time to gradually raise rates from their lowest level in 49 years."

Australia's economy weakened, but did not fall into recession in the past year, because of strong demand from China and other countries for its commodities, such as iron and coal.

Australia is the first developed country to raise interest rates. The news is boosting equity markets and depressing high quality corporate bonds.

Friday, July 24, 2009

The New Normal

The following is a reprint of an article written by PIMCO on 06/01/2009. PIMCO is highly regarded in the financial community and I believe their observations and conclusions should be given much weight.

PIMCO’s secular (three- to five-year) outlook guides the way it structures portfolios in terms of duration, yield curve positioning, sector exposure, credit quality and other risk measures. PIMCO develops its secular view at its annual Secular Forum, during which its investment professionals from around the world gather for three days of discussion and debate about the global economy and financial markets. Also invited are outside speakers - experts in economics, finance, history and politics - to supplement the firm’s internal analysis.

The following are key conclusions from PIMCO’s 2009 Forum:


PIMCO believes that following the severe shocks to the global economy in the second half of 2008, the world embarked upon a journey of change not likely to be reversed over the next few years. This journey, likely characterized by starts, stops and volatility, will include some of these features:

Slow Growth in Developed Economies – Growth rates in developed economies are likely to be lower over the next three to five years. Potential growth in the U.S. could fall from 3 percent in the recent past to around 2 percent. One reason is debt exhaustion at the household level (especially in the U.S. and U.K.) and deleveraging among financial institutions that will make it difficult for the global economy to adjust as it has in prior economic crises.

Politics Matter – Another reason for muted growth will be a dampening of productivity as the public sector overstays as a provider of goods that belong in the private sector. More regulation and higher taxes will restrain the growth of output. While government involvement was clearly necessary to stabilize the financial system, the global economy is now highly vulnerable to policy mistakes. These could include protectionism, mismanagement of public finances and the overriding of investors’ contract rights.

Emerging Economies to Bifurcate – In general, emerging economies should grow faster than the developed world. There will be a continuing shift in the balance of economic power away from the major developed economies and toward important emerging countries. Emerging economies will divide into two groups. Countries with fiscal and economic imbalances will return to the old paradigm that alternates between austerity and instability. Those in stronger financial condition and with growing internal markets, such as China, will maintain their development breakout phase, thought not at the torrid pace of recent years.

Short Term Deflation, Long Term Inflation – Deflation risks should predominate in the near term given the severity of the collapse in global demand and the resulting large gap in actual versus potential output. Inflation risks will come to the fore later in PIMCO’s secular horizon, however, as potential output becomes more constrained, in part due to supply destruction, and policymakers struggle to withdraw the massive levels of monetary and fiscal stimulus that have recently been introduced.

U.S. Dollar Risk – In the U.S., inflation risk and currency risk are linked. Should U.S. policymakers lack the commitment or the skill to drain the system of emergency liquidity at the appropriate time, confidence in the U.S. dollar as the world’s reserve currency could erode.

Banking and Finance to Shrink – The financial sector’s formerly commanding presence in the economy will be curtailed. With regulation more expansive, the sector will be de-risked, de-levered and subject to greater burden sharing by politicians. Consolidation will spread beyond banks to non-bank financial institutions and the investment management industry.


Favor the Front End of Yield Curves – Yields on short maturities are likely to be anchored near current low levels for a longer period than what is now priced into forward interest rate curves. Policymakers in many countries are likely to overstay with loose monetary policy.

Emphasize Income-Producing Instruments – An environment of low growth and political uncertainty favors high quality, yield-oriented securities over those offering mainly capital gains. With regard to credit risk, it will make sense to stay relatively high up in capital structures, as yield premiums and valuations of equities and subordinated securities will reflect heightened risks of burden sharing and contract disruptions.

Focus on Global Securities – Diversification outside the U.S. will likely yield benefits. U.S. bonds, especially Treasuries, will face greater sovereign risk as the U.S. debt burden mounts and inflation expectations start to rise later in our secular time frame.

Hedge Against a Weaker U.S. Dollar – Investors should look to protect themselves against the risk that U.S. policymakers will not be able to prevent erosion in the value of the dollar. The magnitude of the dollar’s depreciation against other currencies could be outpaced by the dollar’s fall against real assets.

Saturday, June 6, 2009

The Financial Crisis

I have been asked many times to explain the current financial crisis. I think John Mauldin does it much better than me.

So here is a link to a Dennis Prager interview with
John Mauldin on Nov 1, 2008

The Financial Crisis - 3 Part Interview Click the Link