June Musings

Some interesting trend changes appear to have occurred in May. The most important were yields on 10-year US Treasury Notes went from 1.67% to 2.16%. The end of the 30 plus year bull market in bonds was declared by Bill Gross of Pimco. Utility stocks lost 9.1% of their value in May while Telecoms , REIT's MLP's and the majority of bond categories all had losses.

Investors pushed up stocks for the seventh month in a row as the S&P 500 finished at 1630.74, up 14.3% year to date. Speculation as to when the FED will begin tapering it's bond buying binge is a hot topic which seems to cause stocks to sell off.

Valuation levels in slow growth/ high yielding stocks had reached levels not seen in some time relative to the market averages hence the sudden run for exits in this most successful investment category for the past year.

"Once everyone knows how to play the game they change all the rules" is a common Wall Street adage.

One of my fellow market observers Steve Reynolds of Craig Drill Capital L.P. has drawn attention to a recent Vanguard Group survey citing 86 years of market data which concludes the major predictor of stock market performance is valuation not GDP growth, dividend levels, earnings or interest rates. Economists and Wall Street forecasters focus on all these other issues but most recommend staying fully invested regardless of valuation.

Rational people buy when things are cheap and sell when things are dear. Warren Buffet is the richest example of such an investor who buys low and when he does sell, it is normally for high prices. Human psychology seemingly keeps rational people from doing the same as we move from phases of fear to greed and back again often overlooking valuation.

At 1630 the S&P 500 is trading at 15 times the $108 consensus estimate for this market index whose yield rivals that of the 10-year Treasury note. Stocks while not dirt cheap are cheap relative to bonds and their own historical averages.

Common sense indicates that bonds are far from cheap and likely very dear as rates have finally begun to rise as the global economy remains in growth mode. Stocks in the middle of their historic PE range of 7x - 22x are well off their March 2009 panic lows but have not approached valuations at previous market peaks.

In the short run numerous factors affect market prices around the world today: including timing the next Fed move, Japanese monetary policy, and global unrest.  

We will continue to focus on generating returns given our assessment of where value lies.

Douglas Coppola 

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.

May Musings

Sell in May and Go Away?

The S&P 500 index gained 1.9 % in April versus its 1.5 % historical average return since 1950. Health Care stocks, Utilities and Consumer Staples led the year to date performance parade with returns of 19%, 18 % and 17 %. Defensive stocks rule and high dividend payers reign supreme in this yield starved environment; 175 companies have raised their dividends while only 9 have lowered them.

First quarter GDP was + 2.5 % with an unemployment rate of 7.6% and the lowest labor participation rate of 63.3 % since 1979. At that time we had double digit inflation and Jimmy Carter as President.

On the earnings front, 57% of reporting companies have posted lower than expected revenues but 70% have exceeded consensus earnings estimates. Managements are keeping costs down and margins up in this slow growth economy while facing the headwinds of strengthening dollar. In some spots earnings are beginning to sputter, with misses by CAT, GE, IBM and MMM .Despite these negatives the S&P has had the highest quarterly earnings ever of $26.44 annualizing at $105.76 for a 15 times forward P/E ratio.

Ten year US treasury yields closed at 1.67 % while German Bunds yield 1.22%. Spanish sovereign debt for 10 years now pays 4.14 %. Euro austerity measures and deleveraging on the continent have caused 27% unemployment in Spain and 12.1 % across the Euro zone.

Gold saw a 13.6 % drop in 2 days during the month or the biggest drop in 30 years .We seem to have abandoned the fear of hyper inflation? What happened to too much money chasing too few goods? We are witnessing easy money finding its way into financial assets rather than the real economy.

Japan has begun a massive asset buying binge that has rallied their long dormant stock market. They aim to jump start their economy and rescue an increasingly less competitive manufacturing base. As Japanese stocks soar the Yen plunges to multi year lows versus the dollar and Euro.

Europe ,China , Russia and the developing countries all feel pressure to stay competitive and will likely lower interest rates sooner rather than later. Austerity policies will shortly come to an end in the Euro zone as German elections near and unrest in the streets will likely create a need to stimulate GDP and job growth rather than curb deficits.

As we begin the "worst six months of the year" for stock market returns with the S&P 500 index at new all time highs one wonders if this rotation into high yielding equities can continue. History argues for a pause in this rally as the past 3 years saw declines beginning in May.

So far in 2013 U.S. stocks have outperformed non U.S. stocks as well as bonds and commodities. Can we continue this uptrend is the big question?

While bonds are unlikely to appreciate much from here without a global recession both domestic and non US equities are likely to benefit from easy monetary measures and Europe takes a holiday from austerity.

Gather Ye Rosebuds while Ye May!

Douglas Coppola

April 30, 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.

April Musings

New Highs Reached….Are April Showers Next?

The first quarter of 2013 was full of surprises. Florida Gulf Coast University, a Cinderella team, made it to the Sweet 16 level in the NCAA Tournament. A budget sequester in Washington and a brief trip over the dreaded Fiscal Cliff came then went with little effect. The nation's economy survived a sizeable tax increase and continues its slow rate of growth. Both the S&P 500 Index and Dow Jones Industrial Average reached new levels.

On the last day of the quarter the S&P 500 index reached an all time high by 3 points surpassing the 1565.15 peak of 2007. In 2000 at 1527.46 index earnings were $67, P/E ratios were 22.8 times. Earnings were $100 in 2012 with companies having half the debt they had 13 years ago. We seem to have broken out into a new uptrend.

Seventeen Wall Street analysts predict a year end close of 1583, with forecast earnings of $110.51. Today’s price level is a still modest Price/Earnings ratio of 14.1 times forward earnings. The dividend yield is over 2% with an earnings yield E/P of 7%. Index return on equity is 21%.

For the month and YTD, S&P 500 was +3.3% and +10% respectively. Except for bank loans at +2.11%, every bond index was down marginally. The aggregate bond index -0.20%, T-bills returned 0%. Commodities returned -1.1%.

Japan's Prime Minister Shinzo Abe declared an end to the era of deflation and embraced aggressive monetary easing policy similar to our own Ben Bernanke. The Nikkei 225 index in Tokyo managed an 11.7 % gain in dollar terms and 21.5 % in Yen terms. This was the best in the developed world.

Emerging stock markets were down 2.2 %, led by Brazil at -7.5%. Losses came about despite negative cash inflows, lower P/E ratios and higher earnings growth expectations than US shares.

The US dollar index has rallied 5.5% from its September 2012 low despite numerous predictions of the currency's demise. This may account for a similar percentage decline in gold prices this quarter.

Europe is still reeling from concerns over their currency union and overleveraged banks. Spain and Italy suffer from very high unemployment and recession while Greece and Cyprus are in Depression with no release valve from currency devaluation. Necessary and traditional currency devaluations are not in the lexicon of the elite Eurocrats.

An ever tightening noose is slowly asphyxiating already weak economies.

It is logical to assume that the sick men of the south will likely die from the prescribed cure called fiscal austerity. Alternatively and ultimately the strong countries like Germany will be forced to guarantee the debt of their weaker brethren or suffer a Euro break up.

Bank deposit confiscations, above 100,000 insured Euros in Cypress are likely to cause every Euro bank depositor to question the safety of their money.

Institutional and individual investors alike are anxious for a return on their savings. With much of the average of the S&P 500 index paying dividend yields exceeding the 10 year US Treasury’s 1.85% many find stocks a reasonable alternative to bonds. In addition, dividend and capital gains are taxed at 20% or less while income is taxed at the higher federal rate of 39.6%.

With the Central Bank’s ultra easy policy assured for 2 more years, uncertain new leadership in China and a weak Euro zone investment choices have narrowed. Our solution is to continue to seek higher yields from lower credit bonds with short durations. Credit defaults remaining low in the US make high yield corporate debt relatively attractive.

Mortgage Backed Securities still look good with housing prices on the rise. Additionally, Master Limited Partnerships provide high yields, tax deferral and a way to participate in essential infrastructure build out.

It is important to note that despite record debt levels the US is moving toward energy independence. With “fracking technology” we are unlocking our domestic shale reserves.

This gradual but steady move away from foreign energy imports improves our current account and budget deficits. Low energy costs due to domestic sourcing will encourage an industrial renaissance in this country.

With gridlock in Washington, a solid housing recovery, historically low interest rates plus emerging energy independence the stage appears set for further share price gains.

Increasingly the US is seen as a haven for foreign assets. It is interesting to note that both the Chinese and Russians are buying our real estate and energy assets.

Consumer confidence may be low but the world's confidence in our financial system appears to be rising.

Douglas Coppola 

April 1, 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.

March Musings

The S&P 500 was up 1.1% in February. The DJIA closed at 14054.49, merely 110 points away from its October 9, 2007 closing high, while the S&P is just 3.1% below its all time closing high. Is this period in time like the last quarter of 2007 or for that matter similar to the previous market peak in March of 2000?

We believe there are major differences in market valuations, economic prospects, leverage on personal and corporate balance sheets and government policies. All indications are for continued 2% US GDP growth and 3.2 % global GDP growth rather than another boom - bust cycle. While the S&P 500 has rallied 13% from the November 2012 lows, earnings have come in strong so far in Q4 2012 with more than 60% of companies beating expectations. Corporate profits will come in around $100 for the S&P 500 in 2012 and are expected to rise to perhaps $110 for 2013. Morgan Stanley’s research group, however, expects only $98 in S&P 500 earnings in 2013.

I find it noteworthy that in March of 2000 with the S&P 500 high of 1527 and in October 2007 at all time highs of 1565, earnings were $66.97 and $93.36 respectively. At present we have higher earnings with lower P/E ratios and much lower interest rates, some 4% lower. After both prior peaks corporate earnings plunged 52% and 86% within two years. As we know in hindsight, this was the result of the NASDAQ bubble and the recession that followed plus terror attacks in 2001. In 2008 we experienced a housing bubble, financial panic and global recession all due to excess leverage in the system.

Since 1960 yields have ranged from 15% in 1981 to as low as 1.4% last summer. At the same time P/E ratios on the DIJA have ranged from about 27 times earnings 1929 and 1999 to as low as 7 times in the 1930’s and 7 times again in the mid-1970’s. Yes, this time things are different, however with huge government debt in the developed countries the stage may be set for the bursting of a government created bond bubble.

We are concerned about the high level of government debt and the potential for higher inflation, yet the gold price has retreated for 5 months in a row. The GLD, Exchange Traded Fund sits 12% below its October 2012 high and 17.7% below its August 2011 peak. In February gold ETF assets dropped 4%, the most since April of 2008.This is not a sign of impending inflation.

With the yellow metal sitting near bear market territory and treasury bonds near historical low yields we ask: where can investors make a decent return on their money? The surprising answer seems to be US stocks.

At 1514 for the S&P 500 the P/E is likely to be 14.5 times forward earnings. In spite of the recent price rise, the market sells below its midrange historic average of 17 times. With 10 year treasury yields at 1.88%, stocks carry an earnings yield of $104/1514 or 6.86%, also exceeding the 6% yield available on so called “junk” corporate debt. We are optimistic that bond yields will remain steady this year but it is likely US stocks will outperform bonds.

As for the Sequester scare, we believe that $85 billion in cuts will not sink the $16 trillion, US economy. At merely 2.25% of the total US budget, Washington will learn cuts won’t hurt and may even help as a rising US dollar seems to indicate. As long as the world views the US as a safe haven we will not see a run on the US dollar nor the US stock or bond markets that many fear. Reducing deficit spending will eventually be viewed in a positive light.

Indeed a correction in stock prices may be overdue but in the past years mid-April has turned out to be the preferred selling point for investors.

In our bond portfolios we continue to seek low duration higher credit risk bonds. If we can manage to avoid a US or global recession in 2013 reasonable returns should be available in both stocks and shorter duration bonds.

Douglas Coppola

March 1, 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.

February Musings

“As January goes, so goes the market”

The rally that started on November 16, 2012 in stocks has carried us up again in January, with the S&P 500 posting a 5.2% gain for the month. It was the best January since 1997. U.S. Treasury 10-year notes ended the month with about a 2.00% yield after dipping briefly below 1.40% in July of last year. The Barclays Aggregate Bond Index lost 0.70 % in the month as rates rose across most areas of the bond market being most pronounced in 30 year treasuries.

One of the top discussions among market mavens is whether we have begun a shift away from bonds into stocks by institutional and individual investors alike.

US equity mutual funds shed assets again last year, in spite of a double digit market rise. Yet for the first month of 2013, equity fund flows have turned positive. After a 125 % gain off the panic lows of March 2009, the S&P 500 now sits at 1500. Bullish sentiment of 54.7 % has risen near its 5 year high of 58.8 % according to Investors Intelligence. Bears are currently at 21.1 %, signaling investors are feeling confident after this 4 year BULL run.

Our job is to allocate your assets according to your individual risk tolerance, goals, and investment objectives. It is most important to have a frame of reference as to where markets now are in terms of economic and valuation cycles. Additionally, we need to diversify among various asset classes as well as weigh the risks against the potential rewards of a given asset. Typically we look to history as a guide. We have witnessed significant changes over the past 30 years. Most notably, US Treasury bonds have gone from having 14.0 % yields in 1981 to 1.40% in mid-2012. We have beaten back the 1970’s era of inflation. US stocks have rallied from about 1000 in August 1982 to 14,000 on the DJIA currently. There are few straight lines in investing. Treasury bond yields have declined steadily over 3 decades and the US has gone from a large creditor nation to the biggest world debtor of all time. Yet yields have declined as 1970s peak inflation turned into 2008 deflation. A generation of Investors has only experienced declining yields and politcians have yet to feel the public’s wrath for too much spending. We believe however that the rising tide of bond prices has crested.

We no longer expect positive returns in long dated US Government Bonds. 

Since the bailouts of European banks last summer, both the ECB and the Ministry of Finance in Japan have followed in the Fed’s footsteps. All three major currency blocks are printing money via asset purchases. These actions have propelled global stock markets higher and have helped stocks outperform bonds since mid 2012. Pension fund investors with bogeys of 7-8 % for expected returns can no longer rely on bonds to reach their goals and meet promised payment levels. Even high yield low quality corporate bonds yield below 6 %.

Many individual investors are understandably spooked by the enhanced volatility of stocks since 2008.

Stocks are still cheap relative to bonds and have favorable tail winds from rising dividend yields and increasing percentage payouts of their earnings steams. Corporations sit with trillions in cash on their balance sheets and record profit margins. Global GDP growth is anticipated to be 3.2 % this year. U.S. GDP growth is anticipated at 2% and the consensus earnings estimate for the S& P 500 is $110/share putting the PE ratio at a level of 13.6 times forward earnings which still reasonable and below the historic norm.

It is not a 1980s or 1990s bull market, but we are clearly experiencing a rising trend, so we’ll work with it. This January’s rally in stocks typically presages a profitable year ahead. Despite the increased volatility during 2008-2012 where the median loss in the S&P 500 was 19 % versus an average of 11% in the 1970-2012 periods, investors who can handle the volatility will likely reap rewards.

Douglas Coppola 

Feb 7 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.

January 2013 Outlook & 2012 Retrospective

The story of the markets in 2012 will be remembered as one of challenges conquered. Despite the European debt crisis, a Chinese slowdown, anemic US GDP numbers, a contentious US election and peering over the fiscal cliff the S&P 500 managed a respectable gain of 13.4%. The market made most of its progress in the first quarter then swooned several times as the various crises came then went. The MSCI World Index gained 13.96%. Treasury bonds of all maturities returned 1.9% in 2012. The Barclay’s US Aggregate Bond Index Benchmark returned 4.1%. 

Bull markets climb a wall of worry and 2012 was no exception. As we move into 2013 concerns about debt, deficits, and GDP growth continue to befuddle investors. After two ferocious bear markets in the past decade many are still worried about the return of capital rather than their return on capital. Investors clearly prefer bonds to stocks as money flows demonstrate. 

Institutional investors like Warren Buffet and Lee Cooperman of Omega Advisors believe US government bonds are in bubble territory. Cooperman points out that Cisco Systems sold at 100 times earnings with no dividend in 2000 while US government 10 year notes had a yield of 6 %. Now CSCO sells for 10 times earnings with a 2.75 % yield and Treasuries yield 1.91%. Where is the bubble? He further stated that buying Government bonds now is like bending over to pick up a dime in front of a steam roller. 

Simply put holders of long dated bonds will get rolled over when interest rates rise. The Fed has maintained a zero interest rate policy for 48 consecutive months. This policy is unlikely to continue forever.

Trillion dollar deficits and zero interest rates do not a sound fiscal policy make. The US Government is on a crash course with economic reality. 

Now that we have sidestepped the fiscal cliff and raised taxes on married couples earning over $450,000 we need to address spending cuts in earnest. This next bout of negotiation comes to the fore in March as we face the prospect of increasing our $16.4 Trillion debt ceiling. Early signs indicate that another political battle looms. 

As for history helping us predict stock market returns, we see two choices on the menu. Since 1926 the average return for the first term of a new President is 8.2 %; however for an incumbent it turns out to be - 0.3 %. 

Despite easy money policies in Europe, Japan and the USA we believe the developed world will manage GDP growth between 1-2 %. 

Better growth will come from the BRIC nations and other developing countries. These nations have low social spending obligations and tax rates. They have high savings rates. Their populations are looking to build wealth rather than spend it. They have a growing middle class with better balance sheets personally and governmentally. Finally their stock markets sell at levels that do not fully reflect their growth prospects.

The US stock market is not expensive at DJIA -13,391 and SPX-1458 .This level about 13.2 times $110.00 2013 SPX earnings expectations. Historically the price earnings ratio has averaged 15.33 on the S&P 500 Index. Bond yields no longer exceed stock yields, which had been the case for most of the past fifty years. Dividends are still tax advantaged along with capital gains. We conclude that shares are still attractive. 

Our bond strategy is to identify and invest in low duration assets that provide solid yields. One example is Doubleline Total Return Bond Fund. This fund is invested in a combination of guaranteed and non guaranteed mortgage backed bonds with duration of 1.15 years and a current yield around 6 %, far higher than the entire Treasury curve. 

The Federal Reserve policy of buying $90 billion per month of Treasuries and Mortgaged Backed Securities makes MBS a very sound choice with housing prices now stable and rising. 

Come March, another debt crisis will likely materialize. We are more confident that interest rates will rise on steady economic activity than we are that our leaders will meet the challenges of this ongoing debt and deficit dilemma. If we fail to control our budget another downgrade of US debt is in the cards. 

We continue to believe that developed countries are willing to risk higher inflation and currency debasement in order to remain competitive in global markets. Ironically this is a benefit to stock markets as long as inflation remains relatively low given the alternative yields from bonds. 

We expect hard assets and stocks to outperform bonds in 2013. Unfortunately, the volatility of these asset classes keeps many investors at bay. Trying to remain rational in an irrational world is not always easy. 

Our goal is to reduce the volatility of portfolios while retaining risk on positions in order to increase returns. 

Best wishes to you and your family for a healthy and prosperous year. 

Douglas Coppola  

January 4, 2013

Client First Advisors, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Client First Advisors LLC and its representatives are properly licensed or exempt from licensure. 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. Client First Advisors, LLC does not provide legal, accounting or tax advice. Any statement regarding such was written in connection with the explanation of the matters described herein and was not intended to be relied upon.

December Musings

 

"This year has proven to be quite an eye opener in the financial markets." You would never know it from listening to network news that the S&P 500 is down only 0.8 % year to date. Interestingly enough this placid surface masks gut wrenching market volatility.

The NYSE Finance Index is down 18.6 % YTD while the Dow Jones Utility Index is up 10.8 %. Since the financial meltdown in 2008, markets have lived in fear of another like event. Dread of a similar meltdown scenario in Europe haunts investors. Ongoing liquidity concerns and the recent  debt downgrades of  the U.S. and several  European countries has ironically  caused investors to  seek refuge in U.S. Treasury notes, German Bunds  as well as bonds issued by Japan and Switzerland and the U.K.. All of these government bonds have recently reached yield levels not seen in 50 years. Additionally, lower quality debt issuers and global stock markets have all underperformed the US Treasury bond market.

Emerging Equity Markets have led this year’s declines with negative returns ranging from             - 32.9% India, - 23.7% Brazil, - 27.2% China Small Caps, -15.9% China Big Caps to -17.7% in Russia. The equity markets in developed countries have also produced negative returns across the board; Australia - 8.6 %, Canada -11.4%, France - 16%, Germany -13.8% and Japan -13.7%.

Widespread fear of an encore performance of the recent bear market, combined with negative sentiment and sickening volatility have caused investors to flee equities. Corporate earnings however have climbed back to 2007 levels above $100 for the S&P 500 Index. This has resulted in a significantly below average Price/ Earnings ratio of approximately 12.5 times , calendar year 2011 earnings estimates.  

The problem is clearly not in the earning power of our corporations, but in a lack of confidence in global economic growth prospects. Investors see weak political leadership in Europe, Japan and the U.S. Politicians are unable to face the realities of growing deficits and ageing populations. Promises that have been made to voters have proven to be as illusory as the proverbial free lunch. Until we get a reset of leadership and renewed political resolve with an eye toward fiscal responsibility, this fear based environment will continue. The problems we collectively face are not unsolvable, but growth oriented policies and a downsizing of entitlements requires difficult and unpopular actions.

Our approach is to take advantage of this confusing environment and position our portfolios to earn attractive yields from dividends of high quality companies and bond issuers who can weather this fiscal deleveraging storm. In sum, our strategy is to be paid while waiting for the winds of change to calm.  In addition, we continue to believe that gold, energy M.L.P.’s, REIT’s and other tangibly backed assets can provide significant returns in this stealthy inflationary environment.

We welcome your comments and look forward to helping you design and monitor an investment portfolio that suits your specific needs.   

Douglas Coppola 

Client First Advisors, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Client First Advisors LLC and its representatives are properly licensed or exempt from licensure.  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.  Client First Advisors, LLC  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.   Each person should seek advice based on its particular circumstances from independent legal, accounting and tax advisers regarding the matters discussed in this e-mail.