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BCN Advantage – 2013 Annual ReportFebruary 13, 2014
Jeff Bratzler, CFP
The S&P 500 rose 29.6% in 2013, its best annual performance since 1997. The Dow climbed 26.5%, its best year since 1995. The Nasdaq soared 38.3%, its best year since 2009. GDP rose 4.1% in Q3 and 3.2% in Q4. 2013 was the best year for IPOs since 2000. A total of 222 companies went public, up 73% from 2012. Since 2014 began, equity markets have been rattled by the outlook for emerging markets, including slower growth in China, while the Federal Reserve continues to withdraw its monetary stimulus. Analysts have already pared Q1 forecasts to 4.5% for earnings and 3.2% for revenue. The Dow fell 5.3% and the S&P 500 lost 3.6% in January - their worst monthly declines since May 2012. The Nasdaq fell 1.7%, its worst month since October 2012. The good news is that growth for the second half of 2013 topped 3.5%. But the improving numbers cannot mask this anemic expansion. The Joint Economic Committee of Congress calculates that if the pace of the recovery over the past 4 ½ years had simply held to the historical average, the economy would be $1.3 trillion larger today. The economy added just 113,000 jobs in January after closing out 2013 by adding only 74,000, the fewest in three years. The unemployment rate fell to 6.6%, the lowest since October 2008. But unemployment has fallen in large part because more than 7 million Americans have left the workforce. The Fed has been forced to end its bond buying program more because of the dangers fraught with its ballooning balance sheet than because of real improvements in the economy. The Federal Reserve's balance sheet expanded to a record $4 trillion in December from $891 billion in 2007. The Fed now holds $1.5 trillion in mortgage-related assets and $2.2 trillion in Treasuries. At 4 years, 11 months this bull market is already one of the longest since the Great Depression. Looking at the S&P 500 back to 1932, the average bull market duration is 3.8 years. Of 16 bull markets over the past eight decades, only three prior to this one lasted more than 5 years. The S&P 500 has gone 850 calendar days (from October 2011 through January 2014) without a correction of 10% or greater, the 5th longest stretch in the last 50 years.The investing public’s market timing is notoriously bad. And right now, they’re piling into stock mutual funds at the most furious rate in 13-years. Advisors polled by Investors Intelligence reached the lowest percentage of bears since 1987. The percentage of bullish advisors rose to 61.6, the highest in six years. At the October 2007 top, the percentage was 62%. The spread between bulls and bears reached 46.4 percentage points at the beginning of 2014 – for the fifth straight week higher than October 2007. Advisors now have 98.3 percent of their clients’ portfolios allocated to stocks (exposure to equities averaged 72 percent during 2013) and margin debt is at record highs – exceeding $445 billion and far eclipsing 2007 levels. Overall, the S&P, Nasdaq and Dow are simultaneously reaching major trend line resistance in an environment of peak optimism. “Risk increases substantially as the trend ages,” writes Goldman’s chief strategist David Kostin. “The longer the bull market goeson, the higher the excesses become and the more painful the drawdown will be on the other side.” Key metrics indicate stocks are at least 40% overvalued. Record corporate profit margins are the direct result of Federal transfer payments that have continued at emergency levels five years into the economic recovery. Corporations are enjoying stable demand (reflected in flat revenues) without having to hire or pay increasing wages and benefits. So while stock PRICES are merely lofty when compared with current earnings, the danger is that EARNINGS ARE IN A BUBBLE financed by unprecedented monetary and fiscal stimulus. Coming to you in 2014: Higher interest rates, reduced monetary stimulus, reduced fiscal stimulus and reduced discretionary spending (as consumer dollars are redirected toward mandatory health insurance premiums and out-of-pocket deductibles). All the while high paying jobs continue to be replaced with part-time, temporary and contract jobs that pay lower wages or lower benefits or both. Median annual household income has fallen $2,535 since the recession “officially” ended in June 2009 – andthe labor participation rate continues to languish at levels not seen since the 1970s. Each percentage increase in Treasury rates will add $170 billion per year to the interest paid on our national debt. The Eurozone crisis is not over. "The risk of a hard-landing of the Chinese economy is not negligible," observes Societe Generale. Secular bear markets bottom at P/E multiples below 10x and typically require three major corrections over a period of at least 17 years. If historical relationships hold, we face a concluding 40% to 60% peak-to-trough drawdown that would not be reversed until at least the end of 2016. Our discipline to move to cash (when risks outweigh rewards) allows us to become fully invested after declines (as we did in 2009). It’s worth remembering that prior to our decision to go defensive in early 2013, we remained100% invested in stocks for 30 consecutive months and for all but a handful of months since this rally began in March 2009. These markets are every bit as dangerous as 2000 and 2007. There is no way to sugarcoat it. We are about to enter a period that could be worse than 2008. This time around, stocks, bonds and real estate could all fall in value – perhaps precipitously. In other words, there may be no place to hide other than cash, today’s most despised asset.

Foreclosures Hit 6-Year Low in 2013April 11, 2014
Source Address    Investors Business Daily
The number of U.S. homes that got started on the path to foreclosure fell last year to a low not seen since before the high-flying days of the housing boom, the latest evidence that the threat of foreclosures continues to diminish. Lenders also took back the fewest number of homes last year since 2007, ...

Private Equity to Sell Bonds backed by RentalsApril 11, 2014
Source Address    Investors Business Daily
Steve Schwarzman's Blackstone Group has spent $7.5 billion acquiring 40,000 houses in the past two years to create the nation's largest single-family home rental business. The private-equity firm now plans to sell bonds backed by lease payments, the latest step in turning a small business into an industry. ...

Home Equity Loan Revival as Prices RiseApril 03, 2014
Vance CariagaSource Address    Investors Business Daily
While rising home prices and mortgage rates have led to a sharp decline in refinancing activity this year, analysts expect an upswing in the number of home equity loans. That's mainly because as home values rise, more homeowners find themselves with greater equity than they did a year or so ago. For ...

Most Recent IPO’s Have No ProfitsMarch 12, 2014
Steven RussolilloSource Address    Wall Street Journal
About 74% of companies that went public over the past six months weren’t profitable, the most since March 2000, when about four out of five new companies were money-losers. March 2000 is notable for another reason, too. That was the month the Nasdaq Composite peaked before tumbling into a deep bear ...