JP Morgan’s $2 billion loss

No big whoop (article HERE). While a $2 billion loss certainly sounds big, and grabs headlines, it’s actually less than 11% of what the bank earned last year ($17.5 billion). At no time was the “financial system” in jeopardy as the politicians & the media might lead you to believe. (That said, more transparency would be a good thing – which is different than more regulation).

Recent Correction

As we’ve mentioned in the past, the market has 3-4 corrections each year around 5% +/-.  And every 1.1 years the market has a 10% +/- correction. That is considered “normal volatility” for the market. Over the last few weeks the market has corrected about 5% – the first real correction since November 2011!

No one can “predict” what will cause these corrections – we just know the odds are that we will have them. Those “corrections” are in your Plan. We use those to make adjustments to the portfolio &/or invest funds (it’s great to have the opportunity to buy when things go on sale – and like any retail store, we know they’ll have a “sale” at least 3-4 x each year).

Positive Outlook for Us

Two good articles on what I’d say are why things are better than they seem.

Liz Ann Sonders of Schwab (HERE)

• They believe the stock market correction will be less severe than in 2010 & 2011
• The Macro concerns (Europe & US Debt crisis) are trumping better mico news

Daniel Gross – the US is better, stronger and faster than anywhere else in the world (HERE)

• Continued Economic growth; Monthly exports up 50%, etc
• An abundance of “positives” too long to list, please read the article

In sum, there's much to fret about, and volatility is likely to remain elevated until this correction has run its course. But a lot has changed in the past two years—much for the better—particularly for domestically oriented US companies. There's at least a little bit of decoupling underway, certainly between the United States and Europe, and that's likely to assist in keeping the correction from mirroring the ones in 2010 and 2011.

We’re not saying “it’s different this time”; we’re actually saying the opposite – corrections are just part of “normal” market movement. We’ll stay on top of things if the fall out of the “normal” range & we’ll make adjustments.  Recall our favorite saying – you can’t predict the future, but you can Plan for it. We're only an email or phone call away if you'd like to discuss your situation in more detail.

Summary of the article / video:

• The lows of March 2009 marked the beginning of an unexpected recovery—not the beginning of an era of irreversible stagnation.
• The U.S. economy went from shrinking at a 6.7 percent annual rate in the first quarter of 2009 to expanding at a 3.8 percent annual rate in the fourth quarter of that year—a turnaround unprecedented in modern history.
• The stock market has doubled since March 2009, while corporate profits and exports have surged to records.
• The U.S. economy has regained its 2007 peak, and is now growing at a 3 percent annual clip—a more rapid pace than any other developed economy.
• Pretax corporate profits rose from $1.25 trillion in 2008 to $1.8 trillion in 2010, and to $1.94 trillion in 2011
• From the fourth quarter of 2008 to the fourth quarter of 2009, productivity rose 5.4 percent. And it rose an impressive 4.1 percent in 2010
• The typical passenger car sold in 2010 averaged 33.9 miles per gallon, up from 30.1 in 2006
• To hear declinists tell it, the U.S. doesn’t make anything anymore. Well, yes, except for the $180 billion in goods and services Americans export every month. Since bottoming in April 2009 at $124 billion, monthly exports have risen nearly 50 percent.
• The US is the food export kings – exports hit a record $115.8 billion in 2010, and in 2011 soared to $136 billion—nearly double the 2007 total
• In 2010, when the economy added 1.03 million new jobs, the number of jobs supported by exports rose by 500,000, from 8.7 million to 9.2 million.
• The crucible of the recession forged an economic structure that is more resistant to shocks than the brittle vessel that shattered in 2008.
• Meanwhile, Europe continues to grapple with insoluble banking and sovereign debt crises, and developing-economy juggernauts like China and Brazil are showing signs of cracking.
• Contrary to the declinists’ view, global growth has not been a zero-sum game for America’s economy
• It’s easy to look at the record of the past few years and despair. The U.S. has a very long way to go to make up for lost ground in housing and, especially, in jobs. The resurgence of the corporate sector, which provides ample reason for optimism, hasn’t translated into new positions for the legions of unemployed. But here, too, there’s positive news. Since February 2010, the private sector, which accounts for 83 percent of all employment, has added nearly 4.1 million jobs, or about 160,000 per month. That’s not sufficient, but it’s a sign that the jobs machine is clearly working again. (The public sector has been the sole source of job loss: austerity-minded government entities have cut a million jobs since 2010).
• In the months since the Lehman debacle, the U.S. has not lost its ability to grow and innovate. And despite all the headwinds, there’s no reason the expansion that started in July 2009 can’t go on as long as the previous three, which lasted 73 months, 120 months, and 92 months, respectively. When the definitive history of this period is written, it is possible that this post-bust era will go down not as a time of economic decline, but as one of regeneration.

In actual fact, the 1% look a lot more like “regular folk” than most of us really realize. According to the survey:

• 67% grew up in a middle class or poorer household.
• 85% made their wealth in their lifetime.
• 76% describe themselves as “Middle Class” at heart.
• 3% is the sum total of their assets that they inherited (they Earned their wealth).

According to the research they are the “Triumph of the Middle Class” – they see themselves as the quintessence of the Middle Class. That means hard work. That means the value of education. That means the value of family and luck.

How did they make their money – most of these “Middle Class” millionaires wealth came by striving to create a business or idea or product of excellence. The wealth was a byproduct, came to them suddenly and unexpectedly, usually through a liquidity event, such as a big bonus at a major company, or a private equity buyout of the firm they built from scratch.

Why should the public care? Very simply – new jobs are the result of risk-takers making investments. (70% of all new job growth comes from these types of business owners)

It’s an interesting perspective & I encourage you to read the full article

Here’s a synopsis of the USA article:

No pension, no retirement savings — and no solid plan for how they will fund the latter part of their life. That's the dire situation for many small-business owners.

About a third of small-business owners do not have a personal or business-sponsored retirement plan such as a 401(k), a SEP IRA or deferred annuity, according to a new survey from non-profit the American College. Nearly the same numbers haven’t estimated how much money they need for retirement.

Many workers feel unprepared for their golden years. But a lack of retirement planning by small-business owners is stunning because they "have no one else to rely on," says Mary Quist-Newins, director of the State Farm Center for Women and Financial Services at the American College.

Unlike government or company employees, who are eligible for 401(k)s or similar plans, small-business owners are often solely responsible for their retirement planning, she says.

And that can be a difficult task for a business owner who is already taxed time-wise. Saving for retirement falls to the bottom of the to-do list. "They are just so living in the moment," she says. "They are just trying to keep this (business) going." Other reasons business owners aren't better prepared for retirement:

• Just surviving takes priority over saving. Businesses that are in the start-up and early growth phase often reinvest money into the firm, and don't put it into retirement funds.. And many owners — even those of more mature businesses — severed retirement funding during the downturn."Certainly when you're worried about your business surviving, you're not worried about funding your retirement," says an adviser with the non-profit Institutional Retirement Income Council.
• They think the business will provide for their needs. Some owners solely plan on continued revenue from the business or proceeds from selling the firm to sustain them later in life. And there are those who prefer to rely on their business' returns rather than unpredictable stock and bond funds. But if the firm goes south, "They are left with nothing," Preisz says.
• Setting up a company savings account appears daunting. Many haven't set up an employer-sponsored plan since the paperwork can seem time consuming and complex.
• They don't consider retirement. Many entrepreneurs "love what they are doing and don't see the point of retiring," so they don't plan for it, says Patricia Greene, the Paul T. Babson Chair in Entrepreneurial Studies at Babson College. "It's hard for many of them to think what life would be like without (running) the business."

Working with many successful business owners over the years, we’ve learned that one of the essential requirements of “Joining the Club” is managing risk, which requires diversifying your investments away from your business. Consider this: owning a single stock is a riskier proposition than owning a mutual fund or ETF that invests in 100 stocks. Similarly, owning only your business presents more risk than owning a diversified portfolio of financial assets, which may include your business, physical real estate and securities, such as stocks, bonds and mutual funds.  At Mosaic Wealth, we can provide you with a practical framework for “Joining the Club.” Some of the wealth building strategies you may already be familiar with, while others may require some time, education and planning to implement properly.

As evidence of how inappropriate these products are for individual investors, you'll never find a Registered Investment Advisor (RIA – like Mosaic Wealth Management) — someone who provides a fiduciary standard of care and doesn't accept commissions — that recommends them. It is commission-driven compensation, meaning the self-interest of the advisor or salesperson that drives the sale of these products, not an investor's best interests.

Rules to invest by                       

The field of behavioral finance has helped us to understand that we don't always make rational investment decisions. We often make poor decisions because of our biases. And the designers of structured product are well aware of these "flaws" in investor behavior. So they structure products that exploit our flaws.

The good news is that you're now aware that you don't need to have the skills to "reverse engineer" these complex products to figure out what the true risks and costs are. All you need to know is the following:

•Never buy an investment product if there's a commission attached to it.

•Only work with an advisor who offers a fiduciary standard of care.

•Only invest in a product if the seller can demonstrate that they also are investing in the same product.

•Never buy a complex product; if you can't fully understand the nature of the risks and the costs, run as fast as you can because you can be 100 percent certain the complexity is designed to favor the issuer. In other words, you'll be the patsy at the poker table who doesn't know he's the patsy.

•And if you can't adhere to these rules, hire a fiduciary advisor. The cost of the advice will almost certainly be a small fraction of the value added, simply by making sure you only buy products that are designed in your best interests.

I have to say he takes a harsh view on these products, but there are some words of wisdom in his thought process – I think he’s really saying the old “Keep it Simple” approach works fine.  I still believe the best place to start with investments is getting yourself a Roadmap – find out where you are today & where you want to be tomorrow to plot a Roadmap to get you there. We offer a FREE Roadmap at our website (HERE) – give it a try to find out if you’re on track

Key Points

• Market volatility has been relatively muted, with only the first 1% down day of this year
• After the strong run to start the year, another pause or pullback would not be surprising
• But we continue to believe the upward trend will largely stay intact
• Uncertainty abounds as to whether the Fed will unleash a new round of easing but liquidity remains abundant
• Rhetoric continues in Washington but any substantial fiscal or tax policy action this year seems unlikely, despite the many challenges that are looming
• Europe has stabilized somewhat but risks remain elevated
• Meanwhile, central banks around the world are loosening monetary policy, which could bode well for emerging market stocks going forward

• 66% of couples don't agree on the age at which they'll retire, and
• 33% of couples disagree or don't know where they'll live once they retire,
• 47%  of couples don't agree on whether they'll work in retirement
• 73% percent of the couples disagreed on whether they have completed a retirement-income plan
• 55% of the couples surveyed disagreed on what their top source of retirement income would be

Honey, We Have a Financial Adviser

• Only 58% of the couples said they work with a financial adviser
• 35% of the couples said they both meet with their investment professional, while
• 36% said the husband has primary contact with their finance expert,
• 12% said the wife had primary contact, and
• 17% disagree about who meets with that person.

Wives Less Confident

• Overall, the women surveyed described themselves as less knowledgeable than the men did about financing retirement. They also said they were more wary about taking on risk when investing.
• Only 35% of the wives said they could take on full responsibility for the couple's retirement finances if needed, versus 72% of the husbands.
• While 20% of the husbands described themselves as "investors," just 5% of the wives did. Instead, they tended to say they were savers or spenders.
• 37% of the husbands said they make most of their household's financial decisions related to retirement. Just 8% of wives said they were the primary decision-maker
• 21% of the wives surveyed said they are willing to accept lower returns in exchange for preserving wealth, compared to 16% of the husbands who said that.
• Just 54% of the pre-retirees surveyed said they expect to live comfortably in retirement.

The top three retirement worries for pre-retirees are:

• Steep health-care costs,
• Inflation and
• Cuts to Social Security benefits.

All told, 59% of couples agreed that they're worried about unexpected major health-care expenses.

Words of Wisdom

When asked what they would advise young couples today, the survey respondents' top three recommendations were:

1. Make all financial decisions together,
2. Create a budget and stick to it, and
3. Set up an emergency fund to cover six months of expenses.

Given some of the survey results, you may want to explore if you're Retirement Finances are on Track. Try our FREE Roadmap to find out (HERE)

Research shows corporate profits to be the driver of long-term stock market returns, yet there is no doubt that macro events and government fiscal and monetary policy will continue to play a much bigger role in short-term market direction than was historically the case.

In regards to Europe, there are multiple parties that have to agree on multiple issues. It is normal to expect posturing from time-to-time from each party involved. Ultimately it seems something will get done – either Greece stays in the Eurozone or they don’t. There seems there will be a “cost” to Greece, European Governments, and investors in either case. So let’s get on with it and resolve the issue.

A good article on Money.CNN.com titled: “Greece: One Step forward, two steps back”, sums up the various points of view well (Click HERE to read).

Positive Economic Data – Preliminary 4Q US gross domestic product (GDP) report, showing growths of 2.8% in the last quarter of 2011. This pace represents the fastest growth since the second quarter of 2010, but the details within the report were somewhat mixed. On the positive side (private consumption and private fixed investment were both up). In contrast (growth came as a result of inventory accumulation, which tends to be quite cyclical). On balance, we believe the report paints a picture of modest, if unspectacular, growth in the United States.

Unemployment Picture Continues Improving – Doll’s expectation is that jobs growth is likely to average around 150,000 per month, adding up to 1.8 million new jobs for all of 2012. That should be enough to continue to bring the unemployment rate down, but Doll is not expecting it to fall below 8.0% by the end of 2012.

Big Picture – Improved economy since the “double dip” talk of the middle of 2011 (caused by Japan tsunami, US Debt ceiling debate, European Debt woes. Looking ahead, Doll is calling for economic growth in the neighborhood of between 2.0% and 2.5% in 2012.

[From a previous blog post of ours on 9/27/11, we know there is no direct relationship with GDP growth & stock market returns.  It’s corporate earnings, and “unanticipated” changes in growth rates that are highly correlated with equity returns, which bodes well for 2012. Click HERE for full Post]

Fed: No Changes for Now – The Federal Reserve announced that the central bank would maintain a highly accommodative monetary stance for the foreseeable future. In particular, the Fed indicated that it plans to keep rates at their current near-zero level through at least late 2014, a longer timeframe than it had previously indicated.

Background for Stocks Remains Constructive – From a technical perspective, the market backdrop continues to be a strong one. All of the major indices are trading at above their 200-day moving averages and the advance/decline lines are trending quite strong. Additionally, the amount of cash on the sidelines remains extremely high.

Although economic and market data is looking better than it did several months ago, it is important to remember that significant downside risks remain. The European debt crisis still has the potential to spiral out of control and investors need to keep an eye on potentially rising oil and gasoline prices. Additionally, should Congress fail to extend the payroll tax cut beyond February, we could see a consumer spending pullback.

On balance, however, Doll believes the positives outweigh the negatives. Central banks remain highly committed to promoting better economic growth and while we are not expecting to see a clear resolution for the European debt crisis, Doll expects it to remain reasonably well contained. Given this backdrop, Doll thinks it is likely that modest levels of economic growth should continue, which should help pave the way for stock asset outperformance. We tend to agree with most of his points. The most important thing is for your Personal Plan to remain on track. You can check that for FREE with your own FREE Roadmap (click HERE)

In his weekly note, Raymond James' Jeff Saut offers up a great batch of history for those who think the US is facing some crisis of historic proportions.

He starts off with this quote, which sounds very familiar…

“We are suffering just now from a bad attack of economic pessimism. It is common to hear people say that the epoch of enormous economic progress which characterized the century is over; that the rapid improvement in the standard of life is now going to slow down; that a decline in prosperity is more likely than an improvement in the decade which lies ahead.”

It turns out, that was from John Maynard Keynes, and it was said in 1930.

Then Saut passes a long a message from a London-based investor, pondering the last time the US was at risk of a double-dip recession.

“In 1994… If my memory is correct, the term ‘double-dip’ was coined at this time as the U.S. was still suffering the hangover from the Savings & Loan crisis that had exacerbated the 1991 recession. Despite this background of doom and gloom the S&P 500 advanced by 34% in 1995.”

Lest you think there was much less to worry about back then, here are some of the headlines:

Nov 1994 – Norwegian voters decide not to join the European Union.

Dec 1994 – Boris Yeltsin orders troops into Chechnya.

Dec 1994 – Mexican Tequila Crisis – ‘unleashing the Tequila effect on global financial markets.’ The U.S. agrees to a bail-out.

Jan 1995 – Kobe Earthquake in Japan. Feb 1995 – Barings collapses due to speculative trading by Nick Leeson.

Apr 1995 – Oklahoma City bombing kills 168 people.

Jun 1995 – Iraq disarmament crisis. . . .

So there was plenty to worry about.  Saut's bottom line for the week?

This is not the time to be bearish. The turtle makes no progress until it sticks its neck out; Saut has been sticking my neck out since Thanksgiving, believing the Santa rally was beginning. More and more positive news comes out each day – better than expected Chinese GDP growth (+8.9% vs. +8.7%E), a worldwide interest rate easing cycle, the largest jump in German investor confidence ever, a decent Spanish bond auction, and hints of another round of quantitative easing.

The result has the S&P 500 moving higher – Saut thinks it is a mistake to become too bearish . . .A different perspective I thought you’d find of interest.