May Market Musings

The DJIA finished April at 16,580.80 an all-time high but unchanged on the year. SPX closed + 1.9 % YTD, Nasdaq -1.5 % YTD after
9.7 % correction which began in March. 

Ten year treasuries closed the month with a 2.64 % yield. 1 year CD rates hover around 1.00 %. 

Cold weather frosted the 1st Q GDP + 0.1 % versus a 1.2% expectation. We have experienced a 19 quarter recovery which has produced only +11.1% GDP growth. 

The previous 10 recoveries averaged+ 21.4 % GDP growth. In dollar terms we are $12,800 per household below average, according to IBD. Five years of economic anemia have many questioning the Obama administration’s economic policies. Average household income is $51,017 or 8.3 % below 2007. 15 % of Americans live in poverty. The labor participation rate is now 62.8 % at March 1978 levels when Jimmy Carter was the US President.

Russia annexed Crimea and masses troops on Ukraine’s borders. Western allies wring their hands but do little to stop Mr. Putin‘s aggression. Markets blinked but did not crumble. European financial markets held up surprisingly well indicating no economic concern. 

Emerging markets are selling at 10 P/E ratios given a lack of confidence in global growth projections and consumer demand for their commodity related products.

Japan raised taxes in the first quarter and her reform policies are stalling. China is attempting a transformation from an export to consumer driven economy. 

Our 2014 fiscal deficit will be $492 billion down from $680 billion in 2013 thanks to higher tax revenues. As a percent of GDP our yearly deficit has dropped from 9.8 % in 2009 to 2.8 %. If current laws persist however we will move back up to $1 Trillion per year deficits in 2022-2024 according to the Congressional Budget Office.

We have gone 31 months without a 10 % correction in the SPX. 

At 15.4 times forward earnings of $123.12 stocks are not historically rich but far from cheap. The P/E ratio is above the 5 –year (13.2) and the 10 -year(13.8) averages.

Dividends rose to $ 17.8 billion in the 1st Q + 22.9 %. Payouts at 36 % of earnings are below the 52% average. The SPX dividend yield on March 9 ,2009 was 2.72 % it is now 1.87 % . This rally is over 5 years old which is nearing old age for recoveries but may still have legs due to a lack of excesses in the system. 

Corporate mergers are heating up. Large U.S. domiciled companies seek better tax treatment here and are unwilling to repatriate $2 trillion in overseas deposits. There is little incentive for companies to remain captive to the highest corporate tax rates in the world. They seek opportunity elsewhere and have begun buying non US companies as a way to easily change their home country base. Our employment base suffers even at is has now reached a 6.3 % unemployment rate. 

Energy finds on this continent are a potential game changer for employment, the dollar, and foreign policy but is being under emphasized by the Administration. 

The market appears to be digesting last year’s gains. Fully 54.7 % of professional investors remain bullish according to Investors Intelligence while only 20 .8 % are bearish. 

We remain wary of an unexpected recession triggered by a sudden foreign conflict which could break the positive. We are unwilling however to risk capital in long term bonds.

If the pace of GDP growth improves later in 2014 we will continue on a leisurely but favorable course for stock markets.

Your questions are comments are welcome. Thanks for reading!

Douglas Coppola
John Coppola

May 2, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

First Quarter Review, 2014

Despite headwinds from awful winter weather and the annexation by Russia of Crimea, the S&P 500 managed a 1.3% gain in the period while the DJIA dropped by 0.7 %. Virtually all of the gain in March and year to date came in the last two days of the month.

March madness had some real bracket busting outcomes including a Putin showdown where the opposition never turned up and therefore forfeited the game.

The Fed continues to reduce buying of Treasury and Mortgage backed bonds by $10 Billion per month yet yields on 10 year treasuries dropped to 2.73 % from 3.00 % at year end. This was perhaps the biggest financial surprise as Barclay's Aggregate bond index rose by 1.8 % in the quarter. In 2013 bonds posted their biggest drop since 1994.

Soft economic news from China and the lowest inflation numbers in Europe since 2009 have not derailed US or European stock markets. China's Big Caps declined 6.7 %, Japan -6.7 % and bad boy Russia -16.9 %.

According to Fact Set, the S&P 500 is trading at 15.2 times the next 12 months expected earnings, This compares with 13.2 times over the past 5 years and 13.8 for the past decade. Without extraordinarily low interest rates some might conclude the market is overvalued. However, as rates are expected to remain low and profits are still growing we see no major market decline as long as a recession is not on the horizon.

At current P/E levels profit growth is the key to higher stock prices. S&P 500 earnings grew 10.6% in the fourth quarter and markets are still digesting last year’s 30% gain. The US economy continues to be stuck in a +2-3% GDP range, accompanied by very low inflation.

With elections coming in November it seems increasingly likely the GOP may control both branches of Congress in 2015 as President Obama's reset of the economy and foreign policy has provided little by way of new net jobs or wage gains for the middle class. A stalemate in D.C. means fewer negative surprises emanating from our leaders.

In sum, not much has changed since year end. Spring will hopefully bring warmer weather and less international tension.

Douglas Coppola
John Coppola

April 1, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

February Market Review

The S&P 500 rose 4% in February to close +0.6 % year to date despite a rough start to the New Year. The DJIA was down 1.5%.

U.S. 10 year Treasury rates closed at 2.65% from nearly 3.0 % as the year began boosting bond prices.

The Polar vortex led to slower retail sales while Emerging Market weakness caused concern for some investors.

Fourth quarter 2013 earnings are still coming in and are better than anticipated.

Goldman Sachs recently published S&P 500 estimates through 2017 as follows:

2013 - $108 

2014 - $116 

2015 - $125 

2016 - $132 

2017 - $138 

Given the median P/E multiple has been 15x forward earnings for the past 10 years we calculate a value of 2070 for the index late in 2016. This target is only 10.7% higher than today's 1870 level. Based on this calculation alone the market appears to be overvalued by 6.95 % today.

We know that history shows market returns deviate widely as sentiment moves from fear to euphoria. At today’s 16x forward estimates we are benefiting from low interest rates and abundant liquidity provided by the Fed and other Central banks.

To conclude that we've appreciated too much might be premature. Holding cash or bonds make for poor returns. Inflation remains low. Labor costs are under control while profit margins are at record highs as are Corporate Earnings. Dividends continue to rise and payout ratios are still low historically.

Without a recession or much higher interest rates this bull market will likely prove to be long lasting but not without sudden corrections along the way.

Doug Coppola
John Coppola

March 4, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

AS JANUARY GOES SO GOES THE MARKET

After a breathtaking return in 2013 the US. stock market began the New Year on a cautious note. The S&P 500 was down 3.6 % in January with the DJIA -5.3 %. Germany was -6%, Big Cap China -9.9%, Brazil slumped 12.1%. The Emerging Markets ETF declined 8.6 %.

Despite near universal belief that interest rates will climb higher in 2014 the 10 year note went from 3.0% at year end to 2.65 % by month's end. Most believe this is a technical correction not an economic signal.

The move to a risk adverse posture comes from concerns over the slowdown in Chinese manufacturing, European deflation fears and fourth quarter weak retail sales in the U.S. In addition, the Fed is slowing it's buying of mortgage and Treasury bonds by $10 billion per month.

Slow growth in our employment numbers and a swift move into safe haven currencies surprised the investment community. A currency crisis in socialized economies like Argentina, Turkey, and Venezuela led to confusion and uncertainty.

Stock market bulls are counting on a year of earnings growth to support current valuations. The SPX is expected to earn $120.50 in 2014 up some 10% according to consensus estimates.

Bonds are expected to continue their inexorable decline in price. Europe is likely to gain economic traction after a severe recession. Consumers will continue spending while capex around the globe increases due to increased confidence. Thus far, 2014 is not unfolding according to this script.

We anticipate a more volatile year than last. Investor sentiment moved to 5 year highs at year end which is a contrary indicator. Real growth is hard to come by in a slow growth world so while growth stocks made new highs last month, commodity companies are floundering.

Emerging market economies are now 35 % of global GDP and collectively support more people than reside in developed countries. The fact remains that financial wealth disproportionately resides in North America, Europe, and Asia. Large companies in these economies are adept at turning profits given low labor and commodity costs.

The U.S. is the best of the big economies and has a clear energy and technology cost advantage. Our market multiple at 14.6 times forward earnings reflects this situation yet it is far from historical highs if earnings come through.

We seek more growth exposure this year and less dependence on fixed income assets. Cash still yields little in US dollar terms. While inflation is still very tame at 2%, gold has increased about 3% in 2014.

We know from experience that stock markets can rapidly move from one extreme to another. According to Stock Traders Almanac, every down January, since 1950, has been followed by a new or continuing Bear market, a 10% correction, or a flat year. This indicator has had an 88.9 % accuracy, so we are paying close attention to the character of this decline.

We will be diligent in monitoring signs that the heretofore positive investment climate remains benign for equity investors. Five to ten percent corrections are normal and healthy in rising markets.

Doug Coppola

February 3, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

2013 Review & 2014 Preview

The S&P 500 had its best year since 1997 finishing up 29.6 % while the Dow Jones Industrial
Average advanced 26.5 %. No wonder the U.S. stock market surprised Wall Street strategists along
with the average investor.

The 10 year U.S. Treasury ended 2013 with a 2.99% yield up 127 basis points for the year. High
quality, long maturity bonds posted losses. The 10 year yield averaged 3.49% over the past
decade. We are likely to get there in 2014.

Gold fell 28% over the year. A $4 trillion balance sheet at the U.S. Federal Reserve could not prop
up gold prices in the face of rising interest rates and inflation below 2%.

We began 2013 full of apprehension over the “Sequester”, a 3.9% income tax raise in the top
bracket, plus a payroll tax hike for all earners. In addition, we saw an increase in capital gains and
dividend taxes up to 20 % up from 15 %.

Many were concerned with Europe's recession and implementation of our country's big new social
program "Obamacare".

The Federal Reserve executed an $85 billion per month Quantitative Easing program. After it's
December meeting they announced a tapering of their bond purchases in 2014. Markets rallied after
the news.

The Japanese Ministry of Finance embarked upon their own copy cat QE program
with positive consequences. European bond yields dropped throughout 2013 as Mr. Draghi calmed
markets and the Euro held firm. Both Japanese and EU stocks rallied strongly as their economies
stabilized.

Many investors expressed confusion over how new monetary policies would play out.
Few anticipated the result; losses in long dated bonds in the U.S. and soaring equity prices in
developed markets. We only had a 4 % earning increase for domestic corporations; revenues were
up about 2 %.

Diversified and balanced portfolios underperformed along with Emerging markets. Brazil was down
20.1%, Big Cap China -5.1%, Russia -3.4% and India -4%.

Assets considered safe were losers in 2013 while stocks and risky "Junk bonds” paid off
handsomely. We witnessed a gradual increase in investor confidence even while consumers
remained wary.

Many middle class and low income consumers feel like the country is still in recession as jobs have
not returned in great numbers nor has their income increased. Income inequality has
ironically widened in the past 5 years because of the current Administration's policy choices.

Despite record fines by the DOJ for major banks, no resolution on the Keystone pipeline and little
progress on the U.S. budget impasse, investors still perceived U.S. stock markets as an opportune
place for their idle dollars.

Europe crawled out of recession resulting in late year surges in EU stock markets. Germany for
example finished up 28.6 % in 2013. Japan was up 24.5 % in dollar terms.

The U.S. dollar did not collapse as many feared. After an anemic 5 year climb out of recession the U.S. economy seems capable of growing above 2% with less FED help and a 'do nothing Congress." We continue to expect acceleration in global economic growth in 2014.

Why was the U.S. stock market the belle of the Investor’s Ball in 2013?

Energy independence is the top of my list for good news in 2013. The country has moved closer to a long stated goal with a new technology called horizontal drilling combined with the decade’s old technology called fracking.

Entrepreneurs have made U.S. energy independence possible. Newly discovered gas and oil is located on private land and financed with private money. States that have embraced this type of drilling are North Dakota, Texas, Oklahoma, and Pennsylvania. These areas have witnessed economic booms and filled tax coffers.

One wonders what might happen if CA and NY join in the fun or if the Federal government pursued policies encouraging more drilling. The ensuing job creation would create a much needed increase in personal income, higher tax revenues plus lower trade and budget deficits. We could be freed from defending allies in the Middle East, Europe, and Japan for the purpose of oil security.

Earnings, dividends, and margins for U.S. companies reached record levels, while the P /E ratios for stocks rose at least 2 multiples. We are still below 2000 and 2007 P/E levels. Earnings on the S&P 500 companies will finish around $109 a rise of 4.7 % over 2012.

CEO’s authorized record levels of share buybacks supporting higher share prices.. U.S. corporations have approximately $1.8 Trillion in cash on their balance sheets so more buybacks and dividend increases are expected in 2014..

After such a banner year one seeks a repeat. Rather, we expect a gentler rise. The market is trading at fair value or 15.4 times a rosy $120 forward estimate .U.S. interest rates are likely headed higher as the 3 decade bull market in bonds has run it's course.

Investors wanting more of a good thing will likely allocate marginal dollars towards equities rather than bonds. With no 2014 recession in sight we expect stocks to outperform bonds once again.

Doug Coppola
January 3, 2014

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

November 2013 Review and Outlook

November 2013 Review and Outlook 

The S&P 500 closed up 2.8% for the month and has gained 26.6% before dividends year to date. Stocks again beat a tired bond market for the month and year to date.

The stock market has risen nearly 50% without a 10% correction. This is a very unusual situation. It speaks volumes to the fact that the global Central banks have kept interest rates at historic lows.

U.S. companies are making historic earnings with record profit margins and record levels of cash on their balance sheets.

The Morgan Stanley Global Stock Market index is up about 15% year to date while Emerging markets are showing a negative 8% return.

Capital spending has yet to kick in during this abnormally slow recovery. U.S. and European CEO's remain cautious about the pace of recovery, regulation, and tax rates. The Consumer remains wary of taking on more debt.

In this environment companies buy back shares and raise dividends helping to lift the markets.

Unfortunately Washington policies have done nothing to help raise wages for the middle class or help the economy get to back 2007 employment levels.

We expect market trends to remain in place through December. Tax loss selling will be featured in a month when the market typically rises 1.5%.

In 2014 we expect additional loses in long term bond investments while global stock markets outperform both bonds and commodities. At 15.6 times forward earning the S&P 500 P/E ratio is in neutral territory.

Inventors are likely to make more positive allocations to stocks rather than bonds after they review their 2013 returns.

The Federal Reserve is expected to remain in "ease mode" long after tapering their bond buying program, likely in March 2014. We do not expect any important legislation out of Washington until after the November 2014 midterm elections nor do we expect another government shutdown or debt ceiling impasse.

As always your questions and comments are welcome.

Best wishes for a Happy Holiday Season.

Doug

December 5, 2013

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.

October Review and November Outlook

October Review and November Outlook

The S&P 500 finished October +4% bringing the index to new all time highs and +23.2 % year to date. Barclays Capital Aggregate Bond Index had a rare plus month up 0.81% yet still down 1.1% year to date. The 10 year note closed the month with a 2.52% yield.

Third quarter earnings are coming in slightly above expectations while revenue growth remains weak.

The Federal Reserve bond purchase program remains in place most likely until 2014.

Congress kicked the debt ceiling and budget negotiation cans down the road with a new deadline of Feb. 7, 2014 for an agreement.

Until this year investors had the luxury of a 30 year bond bull market to fall back on for low risk returns. With stock markets now significantly outperforming bond markets more money flows in to the asset which treats investors best.

US stocks at 15 times 2014 earnings estimates are not cheap but not expensive. They are very capable of going to higher multiples in a low interest rate environment with rising earnings.

There are few signs of a classic stock market top such as Fed tightening, excess leverage, or too much bullish sentiment.

We typically get to the point where stocks are the talk of the town and investors can do no wrong before a big setback.

Asian, European and Emerging market stocks are still feared and even loathed by some. Yet Japan +22%, Germany +19%, France +18%, UK +13% are big winners this year. Emerging markets are coming back from big losses and commodity based countries are hopeful for better times in 2014.

In this world of slow growth, companies with high quality products, record levels of cash, share buyback programs, and rising dividends are preferred to low coupon fixed income investments.

The global stock rally should continue barring monetary tightening or a regional conflict of significant magnitude.

Doug

November 4, 2013

Disclaimer: This communication is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to purchase any interest in any investment vehicles managed by Client First Advisors, LLC or an associated person or entity. Client First Advisors does not accept any responsibility or liability arising from the use of this communication. No representation is being made that the information presented is accurate, current or complete, and such information is at all times subject to change without notice. Opinions expressed may differ or be contrary to the opinions and recommendations of Client First Advisors. Client First Advisors does not provide legal, accounting or tax advice. Any statement regarding legal, accounting or tax matters was written in connection with the explanation of the matters described herein and was not intended or written to be relied upon by any person as definitive advice. Any discussion of U.S. tax matters contained within this communication is not intended to be used and cannot be used for the purpose of avoiding penalties that may be imposed under applicable Federal, state or local tax law or recommending to another party any transaction or matter addressed herein. Each person should seek advice based on its particular circumstances from independent legal, accounting, and tax advisors regarding the matters discussed in this e-mail.