As Yogi Berra put it so well “It is difficult to make predictions, especially about the future”. With a backdrop involving “Sequestration”, Cypriot financial crisis, Italian election gridlock, and growing deficits, U.S. stocks posted their best first quarter since 1998, with the S&P 500 Index gaining 10.6%[i]. Developed foreign stocks (MSCI EAFE Index) were held back by Europe but still posted a 5.15%i gain for the quarter. In addition, the hedge fund index (HFRI Weighted Composite) was up 3.87%i and the broad bond-market (Barclays Aggregate Bond Index) was nearly flati. All of this as the labor force participation rate in the US fell to 63.3%, the lowest since 1979.
Call us skeptical but we remain concerned about this recovery despite the performance of the market. Last year’s 16% rise in the S&P 500 was fueled by less than 1% earnings growth. When the Dow Jones Industrial Average hit its record back in October 2007, the unemployment rate was 4.7%. In January of this year, the unemployment rate was 7.9%. While total wages and salaries nationwide are up 6.7% since October 2007, the consumer price index has risen more than 10% during the same time frame. In other words, the market has risen despite the economy’s performance, not because of it. Of course, we realize that with the Federal Reserve purchasing 85 billion in Treasury bonds and mortgage backed securities per month that the price-to earnings multiples can expand and push the market higher in the short term. However, we are concerned about the long term consequences and volatile dislocations that may occur when quantitative easing in the United States, Eurozone, and Japan is removed from the market.
In the meantime, as we pursue a goal of earning a reasonable rate of return, “safe haven” vehicles such as fixed income and cash pay next to nothing. Thus, we continue to drift towards more flexible and absolute-return oriented stock and fixed income funds along with high quality dividend stocks. As we mentioned last quarter, several of the flexible managers we use were recognized by Morningstar in their inaugural “Alternative fund manager of the year” award. On that note, one of Creative Financial Group’s asset managers, Richard Raby, has been asked to speak on a panel called “Alternative Investments in Practice” at the 25th annual Morningstar Investment Conference in June. We mention this not to pad Richard’s ego but rather to recognize our participation, as a firm, in the alternatives sector. The fund managers in this sector strive to provide maximum upside market capture and mitigate downside risk. We prefer using mutual funds in this alternatives sector as the investment vehicle of choice in contrast to the opaque world of hedge funds. It is nice to see others following suit in a market that, in our view, is difficult to judge one way or the other.
We began the quarterly with a Yogi Berra quote and figure it is only fitting to end with one. As Yogi put it many years ago “A nickel ain’t worth a dime anymore”. We appreciate your confidence and trust and will work hard to make sure your nickels and dimes continue to maintain their purchasing power. Please call with questions.
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Statements made via this letter are the opinions of Creative Financial Group (“CFG”) and its advisors, and are not to be construed as guarantees, warranties or predictions of future events, portfolio allocations, portfolio results, investment returns, or other outcomes. None of the information contained is intended as a solicitation or offer to purchase or sell a specific security, mutual fund, bond, or any other investment. Readers should not assume that the considerations, suggestions, or recommendations will be profitable, suitable to their circumstances or that future investment and/or portfolio performance will be profitable or favorable. Past performance of indices, mutual funds, or actual portfolios does not guarantee future results. Future results may differ significantly from the past due to materially different economic and market conditions; investments in securities or other financial products involve risk and the possibility of loss, including a permanent loss of principal. Investments are not FDIC insured and have no bank guarantee.
Creative Financial Group (“CFG”) is a division of Synovus Securities, Inc (“SSI”), member FINRA/SIPC. Prior to
January 1, 2011, CFG was a separate registered investment adviser affiliate of SSI. Investment products and services are not FDIC insured, are not deposits of or other obligations of Synovus Bank, are not guaranteed by Synovus Bank and involve investment risk, including possible loss of principal amount invested. Synovus Securities, Inc. is a subsidiary of Synovus Financial Corp and an affiliate of Synovus Bank.
Investment products and services provided by Synovus are offered through Synovus Securities, Inc, Synovus Trust
Company, N.A., GLOBALT, Inc. and Creative Financial Group. The registered broker-dealer offering brokerage products for Synovus is Synovus Securities, Inc., member FINRA/SIPC. Investment products and services are not FDIC insured, are not deposits of or other obligations of Synovus Bank, are not guaranteed by Synovus Bank and involve investment risk, including possible loss of principal amount invested. Synovus Securities, Inc. is a subsidiary of Synovus Financial Corp and an affiliate of Synovus Bank.
The U.S. Securities and Exchange Commission adopted new oversight rules designed to help and protect all investors. These rules generally reflect a reaction to the Madoff and custody scandals, but they do require that we, like all investment firms, adopt new policies and procedures related to verification of your accounts. As such, we request that you take time to compare your account balances and statements from NFS and to contact us if you do not receive those quarterly statements and/or that the values are materially different.”
[i] The investment return and style information and comparisons employ a variety of popular indices, and the index contents and strategies are the property of their respective companies (e.g., Dow Jones, Standard & Poor’s, Morningstar, Barclay Capital, Russell, Morningstar). Although the data is believed to be reliable, CFG makes no warranty with respect to the contents, accuracy, completeness, timeliness, suitability, or reliability of the information, which is represented here for informational use only and should not be considered investment advice or recommendation. None of the indices can be invested directly, and the return figures for these various securities indices are reported without management fees, trading costs, or other expenses subtracted from the returns, and are shown on a total return basis that assumes reinvestment of applicable capital gains and dividends. Components of indices may change over time. The S&P 500 index includes 500 leading companies in leading industries of the U.S. economy, capturing 75% coverage of U.S. equities. Small capitalization stocks are represented by the Russell 2000 Index. Mid Capitalization stocks are represented by the S&P Mid Cap 400 Index. Foreign stocks are represented by the MSCI EAFE Index and emerging markets are represented by the MSCI Emerging Markets Index.
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Creative Financial Group (“CFG”) is a division of Synovus Securities, Inc (“SSI”), member FINRA/SIPC. Prior to January 1, 2011, CFG was a separate registered investment adviser affiliate of SSI. Investment products and services are not FDIC insured, are not deposits of or other obligations of Synovus Bank, are not guaranteed by Synovus Bank and involve investment risk, including possible loss of principal amount invested. Synovus Securities, Inc. is a subsidiary of Synovus Financial Corp and an affiliate of Synovus Bank. You can obtain more information about Synovus Securities, Inc. and its Registered Representatives by accessing BrokerCheck