News

In post-WWII America, business owners and employees luxuriated in a truly extraordinary economic climate. Many investors developed their investment expectations during the unparalleled stock market beneficence of the 1980’s and 1990’s . But as any farmer will tell you, endless sunshine and gentle rains are not our birthright. “Keep an eye on the horizon”, they’ll warn. As we’ll explain in this report, some heavy weather has been gathering on the economic horizon since the start of the new millennium. Talk with investors over 60 and you’ll quickly sense their uneasiness. They watch the news. They read the blogs. They “feel” something changing, but they’re not sure what. To read the complete issue of Blue Sheets, please click on the link below.

Safety has rarely been more expensive—or more dangerous. Curtis Gross, FAI's Director of Research, is interviewed by the Wall Street Journal. For the past five years, the Federal Reserve has pushed down the interest rates on traditionally safe assets such as Treasury bonds to near record lows, in hopes of sparking the economy. Today's 10-year Treasury rate of about 1.95% is about half its level in January 2008. Rock-bottom rates hurt retirees investing for income—and create a dilemma for the millions of savers who rely on bonds to steady their stock portfolios. Bond prices move in the opposite direction of yields, so when prices fall, yields climb. With prices near record highs, even a small move can produce losses for investors.

Mike Martin, FAI’s Chief Investment Officer, is interviewed by the Wall Street Journal. Poor returns and looming rules spur interest in alternatives. Mr. Martin prefers to use short-term bond funds as a cash alternative over low-yielding money funds. Mr. Martin says he has placed clients in the $5 billion FPA New Income Fund, which has generated a return of 2.2% in the past year and has an expense ratio of 0.57%, or $57 for every $10,000 invested. While the fund lagged behind its benchmark, the Barclays U.S. Aggregate Bond index, by about two percentage points in 2012, Mr. Martin is attracted to the fund's short maturity and its credit quality, which Morningstar ranks highly. To read the complete Wall Street Journal article, please click on the link below.

We have received several inquiries from clients concerning our equities and specifically dividend paying securities driven by concerns over rising tax rates on dividend payments. Because of this heightened interest, we wanted to share with you some thoughts on our equity portfolio and the dividend income that it produces.

Mike Martin, FAI’s Chief Investment Officer, is mentioned in The Smartest Kid in Summer School article that appeared in the January issue of Financial Advisor magazine. "Many of the sharpest advisors—people like J. Michael Martin of Financial Advantage in Columbia, Md., . . . — also buy into Asness’ conviction that Shiller P/E ratios reveal an overvalued U.S. equity market. They have no problem waiting for a correction that they believe is inevitable before they establish positions in investments they believe to be promising."

42 DAYS TO the FISCAL CLIFF! On the morning of the election, U.S. stocks sported a year‐to‐date return of 15%. Seven trading days later that figure had shrunk to 9.7%. What’s going on? To read the full article written by Michael Martin, click on the link below.

Curt Gross, FAI's Director of Research, is quoted in a Fidelity news article titled "5 Post-Election Investing Moves. “We’ll go to alternatives when we don’t think we’re getting the returns we want out of stocks and bonds,” says Curt Gross, a financial adviser in Columbia, Md., who currently recommends holding a 15% to 20% stake in alternatives, including 10% in gold.

J. Michael Martin, chief investment officer of Columbia, Md.-based Financial Advantage Wealth Management, which oversees about $305 million, believes the prolonged impact of the Fed's plan to buy mortgage bonds against a background of large federal deficits will be "pronouncedly negative." Suppressed interest rates create a disincentive to save and invest, which deprives the economy of a pool of private capital eager to fund risk-taking innovations, he said.

Curt Gross, FAI’s Director of Research, was quoted in a Fidelity news article on housing stocks. Here is an excerpt: Timber stocks tend to rally in a housing recovery as builders snap up wood products from pine for frames to birch flooring. Several timber stocks are following the trend, including big names like Weyerhaeuser (WY), which also builds homes. But the largest timber landowner in the U.S., Plum Creek Timber (PCL), has lagged the group and still looks like a good bet, according Curtis Gross, a financial adviser with Financial Advantage in Columbia, Md. “About two thirds of Plum Creek’s business is tied to housing and the stock has historically moved in line with the builders. Since late 2011, however, the stock has trailed the sector for “no real good reason,” says Gross. The stock is fairly defensive since Plum Creek has a natural resource base that’s continually being replenished — regardless of home sales — and it’s one of the lowest-cost U.S. timber producers, giving it a competitive advantage. Plus, the stock yields 3.7%, providing a bit of income and downside protection. To read the full article click here.

In his famous plan for placing either one or two lanterns in the Old North church steeple, Paul Revere was not trying to signal whether there would be trouble; trouble was certainly coming. He just wanted to let the Colonists know whether the Redcoats would be marching overland (a longer route which would allow more time to prepare) or would arrive more quickly, by boat. As advisors and investors, we might do well to weigh the implications of this year’s presidential election in a similar fashion. It is already well established that serious financial trouble is in the neighborhood. We just want some idea of when it will explode so we can prepare.