Manarin Investment Counsel, Ltd.

"Based on cyclical patterns of market history, the odds are better than two chances in three that the Dow Jones Industrial Average will reach 15,000 or higher over the next two years," – Barron’s magazine.

 Here’s more evidence for what we’ve been telling you all along. Don’t pay attention to the news channels. They make money by making you scared.

http://www.moneynews.com/StreetTalk/Barrons-Dow-15-000/2012/02/13/id/429220?s=al&promo_code=E281-1

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Please enjoy this letter from the portfolio manager of one of the gold funds that we recommend. Some intriguing thoughts here about the structural issues in the global economy today. We maintain our use of gold as a hedge position in our portfolios, not as a speculation or investment.

Click Here to read.

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Not quite. With all the doomsday reports about a down day on Wall Street, we wanted to provide you with a level-headed commentary on the market. Enjoy.

Dow Down 500, But Fundamentals Still Strong To view this article, Click Here
Brian S. Wesbury - Chief Economist
Robert Stein, CFA - Senior Economist
Date: 8/4/2011

Major stock market indices are down 4-5% today as investors move into panic mode.  There is no single piece of news driving the sell-off; rather the market seems to be gathering downward momentum on its own.  Selling is creating more selling.

Like 1987, the sell-off does not appear to be driven by fundamental factors.  In fact, the fundamentals suggest the market is undervalued and getting more so as it drops.  Many investors assume (or wonder) if the sell-off is indicating deep economic problems.  However, there is no evidence that this is true.

The Federal Reserve is still running a very accommodative monetary policy.  Money supply data shows no contraction – M1 is up 13.8% and M2 is up 8.3% at an annual rate over the past thirteen weeks.  The Fed is holding the funds rate near zero, while nominal GDP is rising near a 4% annual rate recently and “core” inflation is at 3%.  In other words, interest rates are very low in comparison.

If you are worried about a cut in government spending – don’t be.  Federal spending in 2011 is still rising and according to the OMB and CBO it will rise each and every year over the next 10 years.  If you are worried about the size of government and think the budget deal was terrible – you shouldn’t.  Supertanker America is turning and government spending as a share of GDP is scheduled to fall by about 2% of GDP over the next 10 years.

Corporate earnings are rising rapidly.  According to Bob Carey, First Trust’s Chief Investment Officer, with about 80 companies left to report, S&P 500 earnings are up 20% over last year and the S&P 500 P-E ratio (on forward earnings) is roughly 12.  The market is cheap.

Economic data are not tanking.   Initial claims are at 400,000 (down from 478,000 at the end of April).  Car and truck sales were up 6.9% in July (over June) and chain-store retail sales were up 4.6% in July (from last year) versus 2.8% year-over-year growth in July 2010.  Taken together, retail sales appear to have increased by about 0.7% in July even though gasoline prices fell.

Yes, the ISM manufacturing index was just 50.9 in July, but that is the 24^th consecutive month above 50 and is consistent with 2% or more real GDP growth.  Finally, the ADP employment report showed 114,000 new private sector jobs in July, which was the 18th consecutive monthly gain.  In other words, there is absolutely no evidence of a recession at this point.

This leaves us at perhaps the best explanation for the decline: European debt problems, specifically Italy.  It is clear that hot money is moving as investors worry about money market funds and bank solvency.  The euro is falling, European bond yields are rising, US Treasury yields are plummeting and gold is up.  Italy says that it does not face imminent default, but the market acts as if it may.

European countries have spent themselves into a corner, but correcting this mistake will be good for long-term growth, not bad.  While some financial institutions may take losses, government debt itself is water under the bridge.  It’s a sunk cost.  As a result, it has little effect on the economy unless losses create financial contagion.  With mark-to-market accounting now fixed to allow cash flow to be used to value assets, the odds of contagion are minimized and the cost of immunizing America from contagion would be small when compared to 2008.

In the end, the sell-off looks as if it is more of a technical correction in the market, not a fundamental change in direction.  This does not mean that it will end soon.  Corrections run their course and then end.  We wish we could trade each and every move in the market, but we can’t and we don’t know anyone who can.  We are investors, and the market is more undervalued right now than it was when it opened for trading this morning. 

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This information contains forward-looking statements about various economic trends and strategies. You are cautioned that such forward-looking statements are subject to significant business, economic and competitive uncertainties and actual results could be materially different. There are no guarantees associated with any forecast and the opinions stated here are subject to change at any time and are the opinion of the individual strategist. Data comes from the following sources: Census Bureau, Bureau of Labor Statistics, Bureau of Economic Analysis, the Federal Reserve Board, and Haver Analytics. Data is taken from sources generally believed to be reliable but no guarantee is given to its accuracy.

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If you had missed the best 90 days of the S&P 500 over a 15 year period (1993-2007) your average annual return would have been a negative 7%.  If instead you bought the market and held onto it, that same return would have been greater than 10%. 

 

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That's not my rule; it's THE rule!

As an investor, you understand that the market is like a yo-yo climbing a flight of stairs. With that, you accept the likelihood that you will lose money about 3 out of every 10 years.

Speculators think that they are so clever that they can time the market and know when to get in and out of it.

So let's define the difference.

Investing is:

• Putting money to work that you don't need to spend in the short term and leaving it alone without moving it around or chasing recent winners.
• Keeping your arms crossed and staying disciplined while the crowd is urging you to sell.
• Taking your profits when everybody else is eager to buy.
• Owning a diversified portfolio with exposure to assets offering real world financial safety -- in other words, a place where your money is safe in any economic environment.

Speculating is:

• Betting you can outsmart and outperform the market over a long period of time.
• Basing investment decisions on forecasts, computer trading systems, or technical analysis.
• Following the alluring advice of hucksters and charlatans offering you the golden promise of prosperity . . . for a hefty fee, of course.

There is an old Wall Street adage that says, "Bulls make money, bears make money, but pigs get slaughtered." Amazing how simple the truth can be, isn't it? Then how come so many so-called investors (hopefully not you) continue gambling with their serious money?

Because it seems so easy. Just look at all the material you receive in your inbox about how you can get rich trading stocks in your spare time. Or last year's winning mutual funds touted on TV and on the radio. It's all nonsense.

For over three decades I've witnessed thousands of people successfully build wealth but I have to see any of it maintained when achieved through speculation. Sure, a few luckly souls manage to make it big in a short period of time but just as quickly as their wealth was created, in no time at all it is often lost.

Here's the reality check: Nobody I know and nobody you know has built (and more importantly) maintained wealth through speculation.

I don't have anything against speculation so long as you are doing it with your "play money" - which is the money you can afford to lose. But most of time here we are dealing with your serious money . . . the money you need for retirement . . . and that is money you CANNOT afford to lose through speculation.

Understanding the difference between investing and speculating is key to the long term outcome of your financial future. If you are an investor, I commend you for your discipline and hope you stick with the program.

If you are a speculator . . . well, good luck.

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