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Unlimited Wants? You Must Be Talking about Government
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Fed no longer signals but states outright that low rates are here to stay
Obama Administration Rejects Tax Cut Extension on Investments
I know many of our clients are hoping for a reprieve on the expiration of the Bush tax cuts, but we just don’t see that happening. The Wall Street Journal reports that the White House has unilaterally rejected a Republican proposal to extend the Bush Tax cuts another two years. The Obama Administration instead proposes to extend cuts to working and middle-class Americans while eliminating the tax breaks for anyone earning over $250,000 per year. Under this scenario, taxes on capital gains will increase to 20%, taxes on dividends will more than double to as much as 39.6% and estate taxes will go up to 55% on estates over $1 million.
I hope we are wrong on this one, but even if the Republicans were to achieve a 1994-style victory in the house, it probably won’t result in repealing these tax increases. Does your investment plan include tax-advantaged strategies for maximizing wealth and passing it on to the next generation? Lyons Wealth Management works with individuals and institutions with $500,000 or more in investable assets and goals that include increasing income and reducing portfolio risk. Interested in learning more? Contact Alan Stevens at 407-951-8710.
You can read the story in full at
Perspective Over Panic, Please.
There’s no denying it’s been a tough start for equities in May. And for many investors, I’m sure recent market activity is conjuring up feelings reminiscent of 2008. However, before panic sets in it’s always good to get perspective. Admittedly, we’ve seen a measurable pullback from the April peaks, but even after today’s continued sell-off, year-to-date numbers for the major indices are nothing unusual for being four months into a year. Understanding a 5%-10% correction is often typical when valuations become extended further helps keep recent market activity in context.
|
|
From April Peak |
YTD |
|
DJIA |
-7.35% |
-0.46% |
|
S&P 500 |
-8.72% |
-0.38% |
|
S&P 400 |
-10.98% |
4.12% |
|
Russell 2K |
-11.98% |
4.41% |
|
GH Moderate (est.) |
-11% |
-0.68% |
|
GH Core (est.) |
-13% |
-1.00% |
However, inevitably we become myopic in our views, especially when nerves are rattled.
We tend to see the markets as:
S&P 500: Feb 2010 through 5/7/2010.
and lose the true perspective:
S&P 500: Feb 2007 through 5/7/2010.
This isn’t to say some level of skepticism isn’t healthy. But, perspective is important. In 2008, we had essentially a perfect storm, credit freezing, equity markets tanking, a financial system on the brink, major companies like Bear Sterns, Lehman Brothers, FNMA, Freddie Mac, WaMu in trouble and defaulting, not to mention spiking unemployment, disappointing earnings. And the list goes on. In contrast 2010 brings solidly improving economic numbers. GDP at 3.2% annualized vs. -6.4% a year ago. Improvement in jobs (Nonfarm payrolls up 290K just today). Solid earnings reports from a number of companies. Signs of improvement in the housing market. Even AIG is posting profits to the tune of $1.45B. In fact the biggest overhang right now, aside from trade routing investigations, is the obsession with Greece and the sovereign debt contagion. To be sure, a sovereign default would not be a welcome event. But as is often the case, the issue is more a crisis in confidence than anything else. As European leaders continue to work through the issues, we expect investor confidence to be reclaimed.
When emotions run high, decision making abilities become impaired. Again, we tend to see the graph on the left, and not the one on the right. It is for this reason, we rely on our well developed strategies to guide us through these scenarios. The Good Harbor U.S. Tactical strategy is designed to avoid sustained bear markets. When the information we monitor (i.e. return momentum, yield curve dynamics and economic conditions) begins to suggest prolonged weakness, we will take a defensive posture. At the moment, we maintain our current allocation.
Best regards,
Neil Peplinski, CFA
Managing Partner
Cedar Capital Advisors, LLC
8770 W. Bryn Mawr, Suite 1300
Chicago, IL 60631
Office: 312-612-2245
Mobile: 847-309-9851
Fax: 630-982-1711
Good Harbor Strategy Market Commentary
Commentary: If you’re a bull or bear, April certainly provided ample evidence to support your case. On one hand solid earnings reports from a number of companies, an encouraging GDP print and signs of improving consumer sentiment and spending provide evidence of a strengthening economy. This was further reflected in the economic indicators we monitor: an increase in output level and a respectable growth rate reading. Coupled with exceptionally strong stock market momentum, we have reason to suspect decreasing risk premiums and a continued equity rally. However, market action in the closing days of April give reason for pause. Sovereign debt concerns with the downgrading of Greece, Portugal and Spain, led to significant increases in VIX levels (albeit from levels in the mid teens) and a slight widening in credit spreads. Combined with an overall flattening of the U.S. treasury curve this is certainly concerning. In the end though, the strength in equity market momentum, particularly in small cap stocks wins out. Therefore we remain fully allocated to equities for May per the Good Harbor U.S. Tactical model.
Best,
Neil Peplinski, CFA
What is an Enhanced Return Portfolio
The Enhanced Return Portfolio is an income driven strategy that seeks to enhance the return on both cash and existing equity positions through the use of options. With historical sideways markets and increased volatility, this actively managed strategy is designed to take advantage of various market environments.
Cash – A universe of stocks are screened daily for opportunities that meet our rigorous fundamental and technical criteria. Once a stock is selected we enter the position by incorporating a short term buy-write (buy stock/sell covered call) or through cash secured put writing (sell a put).
Existing positions – Clients existing positions are screened daily for covered call writing opportunities. Through advanced technical analysis we seek to incorporate covered calls on stocks that are consolidating or retracing from pivot highs. With the added value of covered call income our goal is to enhance the clients portfolio returns above dividends and capital appreciation.
Total Return Portfolio Total Return is for the client who wants to be nimble and capture the market in both directions. TRP utilizes cash secured put writing along with a buy-write strategy. With a buy-write we go and purchase a stock position while simultaneously writing a covered call. We gain income from the call premium and if the stock is called away we participate in the appreciation. On the cash secured put side; we only write puts on stocks that we don’t mind owning. If the option expires we realize the premium. If we are put the stock, that is not a troubling thing as the new position turns into a buy-write participant.
Tactical Strategies
Overview
Lyons Wealth Management presents Good Harbor Financial, a firm focused on innovative asset management programs. The Good Harbor Financial philosophy is that disciplined, model-driven investment approach that generates enhanced risk-adjusted returns.
When an investment strategy is expressed in model form, it can be researched, back-tested and verified. This provides a rich data set for return and risk management analysis. Through this process the firm has developed the Good Harbor Strategy, a tactical allocation model offered through Lyons Wealth Management. Portfolio Strategies GOOD HARBOR™Annual Returns Summary (Net of Fees)
2003 * 2004 2005 2006 2007 2008 2009 * APR **
Good Harbor Strategy 34.85% 16.35% -2.49% 12.03% 0.87% 1.11% 49.14% 15.46%
S&P 500 Total Return Index 22.76% 10.88% 4.91% 15.79% 5.49% -37.00% 26.46% 5.06% * – Data are not annualized ** – Annualized rate-of-return for period 4/30/2003-12/31/2009
Investment Thesis Good Harbor’s trading philosophy drives our strategy development. We utilize disciplined, model-driven approaches to enhance returns. Our research establishes investment strategies with economic and statistical underpinnings. Through detailed analysis, we quantify and validate our strategies and seek to identify stable and persistent statistical relationships. Prior to deployment, our fund approaches withstand stringent criteria for parameter stability, low volatility and attractive return expectations. The Good Harbor Tactical Allocation strategy is the culmination of a decade of research using over 100 years of market data. The strategy provides a buy-and-hold alternative, yielding cost-effective market exposure with the capacity to take a defensive posture in adverse market conditions. Download The Good Harbor Brochure in PDF format from our website. Download Good Harbor Performance Numbers in PDF format from our website. INTRINSIC VALUE
Annual Returns Summary (Net of Fees)
2001 2002 2003 2004 2005 2006 2007 2008 2009 APR**
Good Harbor Intrinsic Value 31.30% 11.36% 41.86% 15.63% 27.87% 19.12% -0.87% 2.03% 66.80% 22.39%
S&P 500 Total Return Index -11.89% -22.10% 28.68% 10.88% 4.91% 15.79% 5.49% -37.00% 26.46% 0.00% * – Data are not annualized ** – Annualized rate-of-return for period 12/31/2000—12/31/2009 Intrinsic value is a fundamentally-driven strategy that uses a traditional discounted cash flow model (a la Graham & Dodd & Buffet). An important element of this is knowing which type of companies will have a higher degree of predictive ability. The Good Harbor Intrinsic Value strategy seeks to generate superior risk-adjusted returns via a combination of fundamental valuation and options investment strategies. The investment universe consists primarily of firms engaged in businesses related to tangible assets sold into liquid markets. Examples include companies involved in the production of basic materials, Real Estate Investment Trusts and Master Limited Partnerships. A quantitative screening process reduces a universe of 500+ companies to approximately 50 using a database of company metrics. A firm’s intrinsic value is then derived using a detailed cash-flow model. Stocks with high intrinsic value relative to market price are identified as potential investment opportunities. After equities are targeted using the IV models, we look to the options markets for opportunities to gain low-cost hedges on our positions. We are looking for option price anomalies that will allow us to buy cheap insurance typically using calendar or back-spreads. The end result: a long bias portfolio of theoretically undervalued companies with an options overlay for downside protection. This strategy is for accredited investors only. Please contact us for additional information on this strategy. Download the Documentation on the Intrinsic Value Strategy in PDF format from our website. Investment Management Team
Neil R. Peplinski – Managing Partner
Former portfolio manager for Allstate Investments overseeing $400 million portfolio of collateralized debt obligations.
Founder of Good Harbor Financial, Inc., an Illinois RIA with a 6+ year APR of 16.42% (vs. 4.31% for the S&P)
MBA from the University of Chicago Graduate School of Business
MSEE in Electromagnetics from The University of Michigan, BSEE in Electromagnetics from Michigan Technological University Paul R. Ingersoll – Managing Partner
Co-founder NES – Business Services company grown from start-up to over $700 Million in revenue (IPO 1998)
15 years operating and finance experience with private equity-backed companies
MBA with honors from the University of Chicago Graduate School of Business BS in Economics and French from The University of Michigan Important DisclaimerThe data contained herein are presented for informational purposes only. This report is not an offer to buy or sell any securities or to adopt any investment strategy. Past performance is no indication of future performance. Lyons Wealth Management, (the firm) believes that this report provides a fair and accurate portrayal of the information being provided, subject to the warnings included in this disclaimer; however, the firm does not provide any assurances as to the reliability of such information and you should not rely on this information when making an investment decision. The Good Harbor performance figures are net-of-fees and represent a composite of time-weighted returns from all accounts managed to this strategy. Monthly returns are asset-weighted according to beginning period balances, and accounts are included in the composite starting with the first full month under management. All Data provided is Net-of-fees. http://www.lyonswealth.com
