Mike's Content

No One Wants a Repeat of This Drama

Michael Mike Campbell image Michael points out that its important to understand what the politicians in the United States have agreed upon, and how it will impact us in Canada. 

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The Best & Maybe The Only Way to Do It

Michael Mike Campbell image Michael points out the only way that the Canadian Government can raise the money necessary to fund all of our Social Services. Fortunaltely Canada has what it needs to do so.

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Make a commitment to your finances

Michael Mike Campbell image Michael Campbell: Make a commitment to your finances very much in the way Lance Roberts does who’s the host of Street Talks Live but he’s also the chief editor of The X report  that looks at economic and political market topics and I’m so pleased to welcome him back to the show. Lance thanks for taking the time on the weekend.  

Lance Roberts: Absolutely my pleasure
 
MC: Lance there’s no shortage of things for you to be talking about, I know you’ve been busy on CNN NBC and Fox and other shows like that but has it all become a did a little bit overdone or we just becoming too fixated on the investment markets  and events like we’ve just seen with the budget Drama?
 
LR: Absolutely, in fact I’ve one thing that I’ve been talking about in my newsletter in the last couple weeks is that if we go back and look at the history in terms of government shutdowns this is the 18th shutdown that there’s been throughout the history of the United States and the average drawdown in the S&P 500 during any of these periods are is .52 percent. That is less than 1/2 of 1 percent so we are all fixated on this government shutdown and the ethics that are involved in Washington, but in reality the market’s historically haven’t cared. In particular now we have the Federal Reserve pumping $85 billion dollars a month in liquidity and the markets we really don’t care. We’ve been in a strong bullish trend in the markets and that’s been telling you that there’s not really too much concern by the financial markets as to what Washington doing but it certainly makes for good media headlines and conversation.
 
MC: Great point that you are juxtaposing because I don’t know if it’s the media thats so powerful and omnipresent that they fashion trends and one of the fashion trends would be to look at this budget.  Before that it was to look at the Federal Reserve but the Federal Reserve coverage is by far more important. 
 
LR: Absolutely and by no stretch of the imagination what is going on with the Federal Reserve and the recent nomination Janet Yellen brings a whole new dynamic to this issue. Mainly because if you thought Ben Bernanke was damaged in terms of putting money into the market, providing Quantitative Easing and keeping easy monetary policy in place he is going to look like a hawk compared to Janet Yellen. She is going to keep the foot on the accelerator for quite some time and that would be very bullish for the markets. 
In the near term now I want everybody to understand there is a risk that is building here. Historically when you inflate asset markets to a point, and we are in the process of potentially creating the next asset bubble, you have got to be aware that regardless monetary policy eventually the rise comes to an end. This doesn’t last forever but in the meantime it certainly provides a an upward bias towards the markets.
 
MC: So you’re not seeing that tapering is in the offing at all?
 
LR: Not right now. The reason that the Federal Reserve did not taper their bond purchases in September was same reason that the Federal Reserve launched Quantitative Easing 3.5 in December of 2012 when they were worried about the effects of the Fiscal Cliff. Remember the world was going to end because the sequester, and all these spending cuts we’re just going to drive the economy into the ground. It turned out to be not that big of a deal because these trillion dollars worth of cuts were spread between 10,000 different sub agencies. Of course it turned out to have had very negligible effect and all that liquidity sent Stocks Rallying 20 percent for the year. 
 
The reason they didn’t taper in September was because of the debt ceiling debate and government shutdown. They wanted to make sure they didn’t extract support at a time where markets could be facing some turmoil because of Washington antics. Well that turned out to be very prescient and it worked well. 
 
The problem now going forward is that we now have a lot of excess liquidity built up into the markets, so in so if there is a deal reached in the next couple days expect the markets to surge and the S&P 500 will probably hit 1750 – 1800 by the end of this year because of this process building up excess liquidity during this government shutdown. The underlying economics are not improving and that’s going to keep the Fed injecting capital into the markets for an extended period of time. I don’t see a taper any time before 2014
 
MC: So no pressure on interest rates to go up with the same city scenario unfolding in Canada? It’s quite amazing though Lance, all the revisions in economic growth scenarios are downward. I can’t even I keep track of the number of times they have to revise and say it’s not going to be quite that good,  it doesn’t matter whether you are talking about Europe, the US or Canada. 
 
LR: Sure, you do realize they have to do that. The problem for the Federal Reserve and basically every Central Bank in the world is they come out and say for 2013 we expect 4 percent economic growth. Well if  they came out and told you that the economy doesn’t look that great here and we are not sure what is going to happen this year, the markets would tank.  We would be in a major bear market before you would know it. So they have to come out and they have to kind of guide the market’s down. So they come out and take market expectations and match those expectations the first of the year, then they slowly guide those expectations down towards the end of the year. I actually run this analysis every quarter when the Fed releases their projection and show that downward trend and you see in both earnings expectations as well as economic expectations. It’s always higher at the beginning of the year and we tailor down towards the end of the year. This is what keeps market participants from freaking out. 
 
MC: The next drama is going to be the debt ceiling debate. Its surprising the number people who don’t get that there’s two separate issues going,. One the budgetary debate which was in my opinion completely manufactured politically,  then the debt ceiling and a different issue. While there is a lot of talk about a fall, I would have put the probability of default at this point at basically zero. 
 
LR:  Absolutely, there is no there is no risk of default. That there are sufficient cover revenues coming in to pay the interest on our debt with one caveat. In the month of November the interest payments are lumpy and there about $400 Billion in debt that has to be rolled over. So there is that normally high interest service payment that has be paid in the month November, however the reality of default comes down to a choice that is made by the executive branch not to pay those interest payments. We can prioritize payments, we can do other types of things, we can even delay payments temporarily. Now all of that is a technical default, the real issue of default is not paying our debt at all, but that is an entirely different issue. That is what is floated out to the average American to basically use fear mongering to get them to put pressure on their Congressmen and Senators to reach a budget deal that may or may not actually be in their best interest. 
 
MC: We just talked the environment we’ve all been reading in hearing about, what does a trader do with that environment and what is the significance for investors?
LR: When we talk about investors versus traders we have to really talk about your time frames and mentality. In many ways this is something is very near and dear to my heart. As individuals we have 41K plans, we have our portfolios with our advisors Etcetera, and we tend think of ourselves as investors. The reality is that we are all pretty much moving towards being traders more than we are being investors. I say that because if you take a look at the statistics of average holding periods for investment, in 1980 that was 6 years whereas today it’s less than six months. In other words the average investor doesn’t hold things for very long they tend to do exactly the opposite. We’ve we’ve all heard the stories that investors tend to buy at the top and sell at the bottom. If you take a look at money flows just this year, for the first time since 2008 when we were going through the financial crisis this year was the first year that there has been a really big surge in investors buying equity-based mutual funds. Here we are 5 years into the cyclical bull market and they’re just now starting to buy equity-based mutual funds ad nauseam. What this means is that now these individuals are potentially buying very close to a peak in the market and that they are going to wind up selling potentially after the next correction.
 
As a trader what I have to focus on is very very short term movements in the market, and as an investor I really have to understand what the fundamentals of the markets are and then buy that accordingly. It is very important to understand the difference so lets talk about traders for just a second.
 
As a trader I’m only worried about the short term movements of the market. For the most part fundamentals don’t matter as much to me as a trader as it does being a long-term investor. As a trader I am looking at the daily and weekly trends in the markets, are we positive or are we negative. This recent move up in the market since the beginning of this year has been very positive, there’s been a very defined bullish upward trend in the market. This recent correction that we just had over this whole government shut down/debt ceiling debate issue actually brought the market down to that bullish trend. We hit it on Wednesday Oct. 9th, a day we actually bought the market and on Thursday and Friday we had a big surge coming off that support line. That is a very favorable environment, the trend has not been broken and because of all the Fed support. For traders if we get a break out in the market this Monday or Tuesday, which i think is highly possible, if a deal is reached sometime this weekend we can see a very rapid surge in the markets potentially S&P 1750, potentially even 1800 by the end of this year.  
 
So for traders this is a very good environment, for investors not so much. 
MC: It’s been a very difficult by a holding period because the volatility and the intensity of the moves. If you’re on the wrong side of it the intensity seems to prompt people to do the wrong thing, and I personally have to look in the mirror a little bit on that myself. I’d hate to tell you Lance, how much money I spent learning that lesson. In fact I used myself as a contrary indicator for years.
 
LR: Trust me Mike, I have been in this business for over 27 years and I have learned all my lessons very much the hard way, and very extensively might I add. 
 
MC: I’ve got a tear in my eye as we speak.
 
LR: If anybody ever tells you that they never lose money in the market, just trust me they are lying to you.
 
MC: Talking about the investor side of things. It is hard to see a reason not to be bullish, especially with Janet Yellen as the head of the Fed. So I am looking for good quality growth/dividend plays thinking that over time I’ll be okay. But would you be setting aside the market until they sort out the debt ceiling, on the short term at least?
 
LR:  To answer that let me talk quickly about how we manage money at J Wealth Management because I think it’s very key to this conversation. As a money manager I have to navigate two things. I have to navigate the market and I have also navigate client psychology. So now my clients are calling me up and they’re panicking over the debt ceiling because the media says we’re going to default and the World is going to come to an end. So they want to get their cash out right now thinking that if they are not in cash they are going to completely toasted. That’s their psychology. What’s the market telling me? The market is telling me that it is not worried about it, the markets are rallying with the bullish trend and I want to be invested in the market. 
 
So my problem is having to negotiate with my clients to keep their emotions in check so that we can allow the markets to do what they’re supposed to do. This is that overlay between how individuals react emotionally to investing versus how are you and I have to manage money from a non-emotional basis, strictly looking at what the markets are telling us. We’ve got to follow the trends in the market and we have to manage that accordingly. 
 
I agree with you that we have to be bullish in the short term simply because that’s what the markets are are doing. That is what the markets are telling us, they want to go higher at this point because there’s all this liquidity that wants to come into this market. So we have to set our emotions aside.
 
Now I have said that as an investor you have got to be more cautious here. The fundamentals of the market here, Trailing Valuations, Cash Flow, Enterprise value versus EBITA, if we take a look at many many of these valuation metrics of the market there is a very small universe of investable stocks that still meet those positive fundamental criteria. It is getting more difficult to find these opportunities that are quote unquote cheap. That tells you that we’re getting very extended in this market and that eventually we are going to have a reversion of the fantasy so to speak of this liquidity driven rally more to the realistic fundamentals, and those reversions tend to be fairly nasty.
But that could take a year, it could take two years, all I can tell you what is going to happen and that’s all we have to pay attention to is the direction the market and let market tell us when that reversion is beginning to happen and react accordingly. 
 
MC: Absolutely terrific advice and you can find Lance again at http://stawealth.com, he is also the CEO of Street Talk Advisors and he’s a chief editor at The X Factor Report. 

Countering the Nonsense Down South

Michael Mike Campbell image Michael discusses the days this week and in weeks to come that the US will have big debt payments to make if the debt ceiling debt ceiling debate isn’t resolved. Also some of the utter nonsense going on surrounding the debate.

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A Sobering Thought, Broke Gov’t Stealing Your Money

Michael Mike Campbell image That’s right, Michael disusses the IMF report “Entitled Taxing Times”. “In that report the IMF recommends confiscating private wealth in an effort to protect the Status Quo in Government”.

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Read the article Michael refers to HERE