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Stock Market Plunges Intra-day

Allgen Financial — Sat, 08 May 2010 12:49:29 +0000

Yesterday’s (May 6th, 2010) Market Action and the Real Reason for the Fall
Stock markets fell sharply yesterday (see below) with the DJIA (Dow) falling nearly 1000 points intra-day. The market rallied back from the extreme losses but still closed the day down over 3% for the major indices on record level volume. You probably saw various headlines like: “Markets fall on European Debt Fears”, “Stock Markets Plunge on Trading Error” and “Markets Baffle Investors with Sharp Dive”. Although we believe the European sovereign debt fears are legitimate and there was a possibility that there was a trading error, we do not believe that to be the reason for the plunge of the market. Journalists want to point every market move to a catalyst that is taking place on the same day that the markets make their move. We believe the real reason for the fall was the stock market ran too far too fast and investors became overly complacent. When investors become complacent that means that they don’t fear a market drop. If investors don’t believe the market will drop then they will allocate the majority of their investment funds into the stock market. Once all their funds are invested then there is nothing left for them to do except hold on or sell. This will happen on a mass scale and effectively dry up all the demand (potential buyers). Once there is no one left to buy then the stock market will have a difficult time going higher which inevitably leads to the market being vulnerable to a sharp decline, like we saw yesterday. Computer trading programs can increase the markets moves in both directions, but the reason the markets fell was that people became too complacent and overly invested and that leaves no other option to sell at some point.

Market Conditions and Strategy Going Forward
We have been expressing for months that levels of complacency have become too high and the market is vulnerable to a sharp pullback. Other statistics that cause concern for us are the high level of insider sales to insider buys, near record levels of amateur money flows into mutual funds, lower levels of money market funds, overly bullish sentiment and high levels of margin debt. We believe yesterday’s move was just the beginning and we have positioned our assets accordingly months and weeks prior to today’s move. Our actively managed accounts hold over 50% cash and our passively managed accounts hold much higher levels of cash than normal. We have been invested in long-term U.S. Treasuries and Zero coupon bonds that have benefited from the market’s recent fears. In general, in our passively managed accounts we have lessened our exposure to riskier assets and invested in more domestic large cap that have historically held up better in bear markets. In our actively traded accounts we have a small short (inverse ETF) position in international markets (EAFE) that has appreciated as international markets have gone down. Most of our actively traded accounts were flat to up yesterday. After having terrific performance in our actively traded accounts for 2009 we have lagged the markets a bit in 2010. We have purposely been postured for a market correction as we believe the markets are extremely vulnerable for a significant decline. Going forward we plan on staying defensive, at the same time we are looking to take advantage of any hysterical selling by making small purchases in investments we believe will rebound quickly.

Allgen’s Investment Approach
Allgen specializes in active money management. Through technical and fundamental analysis, along with a contrarian mindset, we strive to navigate the markets during periods of prosperity and/or decline. We constantly research and study the markets to find the next emerging area even in asset classes that are typically not used in your “buy and hold” asset allocation portfolios. During the good times we focus on strength, and during the bad times we try to preserve wealth. During periods of stagnation, such as we are experiencing now and potentially years to come, we see ample opportunities to take advantage of this market. If you want to see how active money management may fit into your overall investment portfolio then please email us advisors@allgenfinancial.com or give us a call at 1-888-6ALLGEN (625-5436).

Written By:
Jason Martin, CFP®, CMT
Senior Partner & Chief Investment Officer
Allgen Financial Services, Inc.
martin@allgenfinancial.com
888.6ALLGEN

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2010 Corporate 5k Race - Orlando, Florida

Allgen Financial — Sat, 06 Mar 2010 14:11:25 +0000

Allgen Financial Services, Inc. will be sponsoring a team for the 2010 Corporate 5k run in Orlando, Florida on April 15, 2010. The race begins at 7:15pm at Lake Eola. The Allgen Financial team will be meeting at the Allgen Financial Services, Inc. corporate office on Lake Eola (301 E. Pine Street, Suite 150) at 6:00pm. For those who are participants on other teams, come to our corporate office on April 15th before the race to receive a free gift.

The first 6 people that join the Allgen Financial team will have their entry fee paid for by Allgen Financial Services, Inc. Also, anyone who joins the Allgen Financial team will receive a T-Shirt for the race, and a care packet.

Paul Roldan says, “We know tax time can be a stressful time for most people. Therefore, we want to offer our community a way to release that stress. The 2010 Corporate 5k is ideal for having some fun on an unpleasant day.”

For more information and to register, please contact Kathryn Hite.
Kathryn Hite will be Allgen Financial’s team captain. She can be reached at hite@allgenfinancial.com or (407) 210-3888.

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Orlando Magic Game: Join Allgen Financial & Priority Associates

Allgen Financial — Thu, 29 Oct 2009 10:56:51 +0000

In an effort to support Priority Associates and support our community, Allgen Financial Services, Inc. would like to invite you to join us and other members of our community for an evening at the Orlando Magic game on November 16th.

The Orlando Magic has made tickets available to Priority Associates as a fundraiser. On Monday, November 16, the Orlando Magic will face off against the Charlotte Bobcats at Amway Arena.

For each ticket that you purchase, all money will go towards Priority Associates, a nonprofit organization serving the business community in Central Florida. You will also receive five raffle tickets towards a drawing for tickets to a future Magic Game.

Come out for a good time and invite your friends and family members as well! We hope to see you on November 16th.

Monday, November 16 at 7:00 PM
Discounted Price: $25/ticket

For further information contact:
Jason Howell
jhowell@ipriority.com
321-229-5703

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Buckle Your Seatbelts

Jmartin — Sun, 13 Sep 2009 22:38:12 +0000

The market has shown signs of recovery this year achieving a 13% return through August 31st 2009. This has led the way to an improving economic outlook, with an expected positive GDP in the third quarter. The market has rallied over 50% since its lowest point in March, but is showing signs of a potential pullback over the short-term. This could lead to a pullback of 7-10% from current levels over the next few weeks. We are looking for a pullback in the S&P 500 to a level of 920-950. This pullback will most likely be intense and cause a lot of fear. These types of intense pullbacks will cause the “weaker hands” to exit the market which should lead the way to a solid intermediate term rally into the end of the year. As you will see in figure 1 and 2, there are two distinct technical patterns which have targets of 1,230 for the S&P 500 (Figure 1) and 11,100 for the Dow Jones Industrial Average (DJIA) (Figure 2). Although this may seem like an enormous run from the lows of March to the projected highs, the greatest rallies of all time have followed the largest pullbacks of all time. The 2008-2009 financial crisis was the largest negative return for the market since the Great Depression. So, it would not be irrational to think that history could repeat itself as it so often does.

Figure 1

Figure 2

While we may see a strong run going into the end of the year, there are still various economic pressures that have caught our attention as we move into next year. Further bank and private de-leveraging would lead to tighter credit markets and less consumer spending. Such bank actions are possible as we are witnessing delinquency rates within residential, commercial and credit cards at 15 year highs. Of those three credit card delinquencies are the only one that have started to level off. Both commercial and residential bank loan delinquencies have been consistently rising. Rising loan delinquencies cause banks to tighten lending standards, in turn, taking money out of the economy, which would inhibit expansionary activities such as home purchases and business investments. The September 8th, 2009 consumer credit report showed a drop in consumer credit by an annual rate of 10.4%. In percentage terms, the drop in credit is the biggest since June 1975. And on a year-on-year basis, credit is down 4.3%, the biggest drop since June 1944. This report is clear evidence that consumers are “hunkering down”. Instead of making new purchases they are paying off. Since approximately 70% of the U.S. economy is consumer driven the evidence that private citizens are de-leveraging could have negative effects on the economy. I personally believe that consumer de-leveraging is a good thing long-term for personal balance sheets since Americans are so strapped with debt, but while the de-leveraging process is taking place money that would be used to make purchases is being used to pay off debt and that has a negative effect on consumption.

Going forward the U.S. administration along with the Federal Reserve Board is going to have some very difficult choices to make. Currently the government is faced with sharply declining corporate and private tax revenues. At the same time the government is spending record amounts to boost the economy and bailout failing companies. Declining revenues and increased expenses has caused record deficits. The administration has projected a $1.58 trillion deficit for 2009 and $9 trillion over next the next ten years. Our current U.S. national debt is over $11.8 trillion (see http://www.usdebtclock.org/ for a jaw-dropping look at these numbers in real-time). These massive deficits will be added to our already astronomical debt. There lies the difficult decision that the administration has to make. The three most likely paths they will take are to: 1) raise taxes to increase tax revenues which would probably cause the economy to slow down and further raise unemployment over the current reading of 9.7%; 2) raise the Federal Reserve rate which would tend to support the dollar thereby fight inflation but this would also slow the economy or 3) not do anything and potentially allow inflation to run out of control. So, as you can see the administration is in a catch-22.

Although the administration has its hands full, we do believe there are opportunities out there that we are currently taking advantage of and we also believe that as we go forward into the next year there are going to be more opportunities created. One clear opportunity that we have capitalized on and we believe still has a further move higher is in the commodity markets in general, but especially in gold, gold miners, oil and natural gas. As stock markets around the world dropped over 50% during their recent decline some commodity sectors fell over 80%, which has provided some irrationally low price levels for us to take advantage of. We believe that these sectors will have longer lasting and higher percentage returns than the general equities market. It has become more apparent in recent years that emerging markets are no longer just a small sub-sector of the world economy. But, instead we believe that the emerging countries around the world like China, India, Brazil, Russia, some African and Middle Eastern countries along with other Asian and South American countries will be major drivers of the world economy. This could be the catalyst over the next couple of decades that could reign in new times of economic prosperity. Although we believe the next few years could be difficult looking forward we will be keeping an eye on the growth and increasing influence of the emerging and frontier economies.

If the market does start to get shaky late this year or sometime next year, we will attempt to rotate assets out of some equities and into certain assets that tend to go up when the general markets go down. Assets such as long-term Treasuries, extended duration U.S. debt and other hedging assets that traditionally do well in a “flight to safety” scenario. In times like these it is very important to be able to go defensive when the time calls and to go aggressive when the opportunities present themselves. Although it may seem like rough roads ahead we believe these type of extreme fear and greed driven markets present the best intermediate term opportunities if you are able to navigate the waters correctly.

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Major Changes at Charles Schwab Institutional

Allgen Financial — Thu, 25 Jun 2009 17:56:32 +0000

Orlando, FL, June 25, 2009 - Starting July 1st, 2009, Schwab will waive commissions on electronic equity trades and reimburse transfer of account fees charged by contra brokers until June 30, 2010 if you are new-to-Schwab and Allgen Financial Services, Inc. You must open an account by the end of this year.

What does this mean for you?
Allgen custodies its clients’ accounts at Schwab Institutional. As we actively manage your investments, there will be no fees charged by Schwab for any trades conducted on your account for one year. This can mean significant savings for you. Depending on the size of the account and amount of trades, you could save thousands of dollars. In addition, you will be reimbursed any fees for moving your account to Allgen Financial Services, Inc. & Schwab from another institution. This makes it a great opportunity to consider moving your account over to us since this offer will most-likely only be available for a limited time.

If you would like to learn more about this offer, and/or consider moving your account over to Allgen Financial Services, Inc., please contact us today at: (407) 210-3888 or toll-free 1(888) 6ALLGEN (625-5436).

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10 Reasons to Outsource Payroll

Allgen Financial — Tue, 23 Jun 2009 02:01:05 +0000

Few business owners or managers will cite payroll management as one of their favorite tasks. But, when does it make sense to outsource payroll operations? Here’s a quick look at the top reasons that businesses turn to payroll-services providers.

1. Cost. Big businesses can afford to maintain big payroll departments. For small businesses, however, an in-house payroll service is a money burner. There’s a very good chance you can save money by outsourcing your payroll operations. Figure out how many hours your employees are devoting to payroll-related activities and calculate how much you’re spending. Be sure to factor in the money your business spends on purchasing, printing and distributing checks, creating tax documents, and the like. Compare the amount to the plans offered by several payroll-services providers. You’ll probably be surprised by the result.

2. Productivity. Payroll management is a time-consuming activity. With this burden removed, your employees can focus on doing more productive things.

3. Accuracy. Payroll mistakes can be painful, angering employees and — more ominously — the government. A good payroll-services provider is far less likely to make a serious error than your in-house staff. Furthermore, if a big mistake is made, you can seek restitution from the provider — something you can’t do with your own employees.

4. Redundancy. In-house payroll activities are as reliabe as the people doing the work. With a payroll service, output speed and quality won’t vary when vacations or illnesses arise. You also won’t have to spend time helping new hires understand your business’s payroll system.

5. Speed. Since payroll-services providers are specialists with vast technical resources at their disposal, they can process even the most complex payrolls at lightning-fast speed. Unlike most employers, they can also accommodate a temporary influx of seasonal workers without acquiring new systems that will remain dormant the rest of the year.

6. Expertise. A good payroll-services provider will know all the ins and outs of payroll-related tax laws and regulatory mandates on the federal, state and local levels. Your employees could try to achieve the same level of understanding, but it would take a considerable investment in time and effort.

7. Accountability. If checks are delayed or paperwork is mishandled, it’s the payroll-services provider’s responsibility to fix things. If the provider can’t (or won’t) remedy the situation to your satisfaction, you have recourse. You can switch to another service provider in a snap. Try firing, hiring and training an in-house payroll staff in anything less than several weeks.

8. Flexibility. Boring, repetitive payroll work is like an anchor on your business. Your staff, when freed of rote payroll responsibilities, will be free to focus on other, more creative work.

9. Oversight. Do you have the time and energy to closely supervise your business’s payroll for time and rate abuses and other shady activities? Most payroll services firms have technologies that can spot and alert clients to various types of payroll fraud, such as salary manipulation and “ghost employees.”

10. Peace of Mind. There’s a lot to be said for the security that outsourcing payroll services can bring to a business owner or manager. No headaches, no hassles: You’re left to focus on running a profitable business.

Perhaps you, like many business owners, are ready to make a change to your current payroll process. If so, there are a number of variables to consider during your search for the right service. When you identify the needs of your organization today and in the foreseeable future, you should be able to decide upon a payroll provider which offers the capabilities to support your needs for years to come.

For more information about outsourcing your payroll process, please contact:

Debbie Sonntag
MasterPay USA
8879 West Colonial Dr., #154
Ocoee, FL 34761
(877) 374-1665
dsonntag@masterpayusa.com
www.masterpayusa.com

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The Giant Awakens

Allgen Financial — Wed, 20 May 2009 16:49:29 +0000

Unemployment is on the rise, gross domestic product is still hovering in negative territory, our national debt is being protested in the streets across America and word is out that the US Treasury is printing more of the greenback to offset bailout initiatives coming out of Washington. In addition to this, United Nation officials are discussing the possibility of creating a world currency to replace the US dollar in the world economy. From the outside looking in, it would seem as though we were under an economic attack yet while the media focuses on the great political divide, a story is emerging from the other side of the globe that could change our economic landscape forever.

China has recently announced their plan to sell out of their U.S. dollar position, describing our economy as a “black whole”, with concerns of our treasury printing more dollars which would only hurt their position as they continue to carry $1.9 trillion of U.S. debt. This is not the first time Beijing has voiced concern over its massive exposure to the US dollar and it most likely will not be the last. In an effort to hedge their economy Beijing’s plan is to concentrate on building an inventory of copper and other industrial metals in order to grow their infrastructure over the next 50 years. Such little attention is being paid to this story that I’m starting to wonder whether or not American investors realize how significant this shift in Chinese policy is regarding the state of the U.S. economy.

As the world’s main reserve currency, the US dollar is used to set international market prices for oil, gold and other currencies. If Beijing abandons their support for the US dollar and the world embraces a “New World Currency” what will happen to the value of our money in the years to come? It doesn’t take much to figure out the answer to this question but in case you have not been on top of this story you should know that these events could have a devastating effect on our economy. The average citizen could see inflation like we have never seen before and investors will be left searching for answers of their own, wondering what to do with their money.

We are certainly navigating in uncharted waters but before you jump into your financial lifeboat let me say this, even during the great depression there were fortunes made by those who were able to follow the money flow. Understand that crisis will often produce opportunity but you have to be willing to seize the opportunities as they present themselves. Back in the early thirties investors didn’t have the news channels like we have today nor did they have the ability to move money as quickly as you can right now. On top of that, the average person didn’t have history as a guide because when the great depression hit, most people were caught off guard unable to hedge themselves with a plan. If you are willing to accept the fact that our world is rapidly changing then you are in great position to capture new profits as long as you are on top of the money flow. For example; if you knew that China was interested in accumulating a position in copper and other industrial metals, then why not invest in those commodities? Seizing opportunity doesn’t mean “buy and hold” till you die, it means looking ahead with an understanding that new trends are created every time an economic shift takes place. One idea for you is to look into commodity Exchange Traded Fund’s (ETF) these instruments take advantage of higher prices in the commodity markets through different portfolios that can include long positions held in Oil, Natural Gas, Zinc, Copper and Aluminum Futures. You don’t have to concentrate all of your money in such an investment but it may help put your mind at ease knowing you are at least moving with the money.

If you think the dollar is on the verge of a collapse, you might consider certain currency ETF’s that would appreciate when the value of the dollar falls. A falling dollar can lead to inflation so you might want to hedge your cash position. Historically, gold has been one of the best places to be when inflation hits the fan but these days you have a variety of ways to invest in this precious metal without having to worry about insurance or storage costs. There are certain ETF’s that allow you to benefit from higher gold prices without having to take delivery of any gold whatsoever.

Another investment that did very well in the 1970’s, while we were experiencing double digit inflation, was real estate. But let’s face it, the experts are still trying to figure out if this market has hit a bottom yet, so one way you can participate without having to worry about putting too much money in this market, is to look at the Real Estate and REIT ETF’s. No lawyers, real estate agents, or closing costs. It trades like a stock which makes it easier to manage risk. You can use stop loss orders on all these that I have mentioned and each can be easily tracked on a price chart.

The formula is simple. Identify the trend, invest your money in the direction of that trend, then, focus all of your attention on protecting your investments with stop loss orders. Above all, try not to fear this market, but instead seize the opportunities as they present themselves to you. We are no longer in a buy/hold environment, we have entered into the new age of buy and protect.

Written By: AJ Monte CMT
Chief Market Strategist
The Market Guys

If you are a do-it-yourself trader and you want to learn more about the strategies mentioned, feel free to visit: http://www.themarketguys.com

If you agree with the strategies mentioned, but you want a professional to manage your assets using some of the strategies above then contact Allgen Financial Services, Inc at (407) 210-3888 or advisors@allgenfinancial.com.

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Buy & Hold vs. Active Money Management

Allgen Financial — Fri, 15 May 2009 01:12:15 +0000

A common rivalry in the financial world is “Buy & Hold” vs. “Active Money Management”. So which one is better? Simple answer…it depends! If you were to look at a long-term chart of the Dow Jones Industrial Average (Figure 1) going back to 1900, then you would see alternating time periods of prosperity and times of stagnation (flat to negative growth). On average these alternating time periods are around 15-years in duration. During the three time periods of prosperity “buy and hold” investing provided solid returns. However, during the three periods of no growth “buy and hold” actually lost money especially during the periods of stagflation (which means no growth and high inflation) which caused significant losses in real returns (returns after inflation).

Figure 1
Sources: Ned Davis Research (Secular Bear Markets), WSJ Market Data Group (DJIA)

Figure (1) specifically shows that the market grew from the low in 1915 to 1929 leading up to the “Great Depression”, approximately 14 years of prosperity. Then during the “Great Depression” from 1929 to 1942 the market averaged an annualized loss of 10%. Then, spurred on by World War II the Dow went from 100 in 1942 to 1,000 in 1966 increasing tenfold during a time of prosperity. From 1966 to 1982, a 16 year period of no growth, the market averaged -1.5% per year. Jump started by Reaganomics, then propelled higher by the tech bubble the market had one of its greatest bull markets of all time. From 1982 through 2000 the Dow went from 1,000 to over 10,000. Finally, year 2000 until present we have experience a net loss after 9 years.

Stagflation in the 70’s
Let’s take a closer look at the previous period of stagflation from 1966 to 1982. (Figure 2) As you can see during that 16-year period there were some significant falls and some strong rallies. In fact, the market decline from 1973 to 1975 was a loss of almost 50%. The following year from the 1975 low of 577 to the 1976 high of 1,000 the DOW rallied nearly 75%. During that 16-year time period there were other extreme falls followed by impressive rallies. A good active money management strategy will thrive during those times compared to the “buy and hold” allocation. The “buy and hold” portfolio would have lost money during that’s same 16-year time period.

Recent Market Events
If you look at the most recent decade since 2000 through to the present day (Figure 2), you will see similar major swings in the market. The DOW from 2000 to the end of 2002 was down nearly 40%. During that same time period, the tech heavy NASDAQ was down over 75%! During the following 5-years, the market nearly doubled with almost a 100% return. Then, the biggest market decline since the “Great Depression” came. From November 2007 to March 2009, the DOW was down over 54%. And most recently, in the last 2-months alone, the DOW has increased over 30%. The biggest two month rally in the last 70-years.
Over the past nine years, if you had your money invested properly, it would have been possible to be more defensive during the bad times, like the bursting of the tech bubble and also during 2008. At the same time, it would have been possible to to take advantage of the bull market from 2003-2007 and the recent 30% bounce off the bottom.

Figure 2
Source: StockCharts.com

Advantages of Active Money Management
During the non-growth periods, the reputable active money managers would have most-likely outperformed the “buy and hold” group because of their ability to go cash during the bad times. In turn, being able to get back in the market as the market turned around. To be fair, not all active money managers would have done better than the “buy and hold” managers during those time periods. It is not easy to time when to get in and when to get out of the market. But, reputable active money managers with a solid understanding of technical and fundamental analysis combined with a contrarian mind set, will increase your chances of outperforming the market significantly during times of stagnation and stagflation.

Another major advantage an active money manager has is their ability to spot emerging areas of growth outside of the typical asset allocation, and focus a portion of the portfolio to take advantage of strength in specific sectors. The most recent example of this would be the growth of commodities during 2003-2008. Asset classes like steel, oil, natural gas, coal, fertilizers, etc. outperformed the stock market by over 300% during that same time period. Other examples would be REITs (Real Estate Investment Trusts) from 2000-2005. Real Estate related stocks outperformed the stock market significantly, experiencing positive moves even during the bear market from 2000-2002. Emerging markets from 2003-2008 far outperformed your typical asset allocation during the same time period. Good technicians (chartists) are able to spot and take advantage of new emerging sectors coming off of bottoms.

What’s Next?
I believe we are 9-years into a cyclical 15-year period of stagnation that began in the year 2000. I also believe there is a very good chance over the next year we will see inflation increase because of the amount of money the U.S. government and other governments around the world are spending. If history repeats itself, we will experience extreme volatility. This means we will have powerful moves upward followed by powerful moves downward. If you are in the “buy and hold” camp during this time period, you will be at a serious disadvantage to some active money managers. These money managers will take advantage of powerful upward moves and honing in on the sectors that will outperform during inflationary times. Also, being able to go defensive if the market falls and experiences a prolonged bear trend.

Written By:
Jason Martin, CFP®, CMT
Senior Partner & Chief Investment Officer
Allgen Financial Services, Inc.
martin@allgenfinancial.com

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Kathryn Hite Joins Allgen Financial Services

Allgen Financial — Tue, 05 May 2009 19:33:23 +0000

We are pleased to announce Kathryn Hite as the latest addition to the Allgen Financial Services’ financial advisory team. Kathryn joins Allgen Financial Services, Inc. after five successful years as a Regional Leader with Primerica Financial Services, Inc, one of the largest personal financial services firms in the world. Kathryn brings a background of expertise in life insurance, debt consolidation, mutual fund investment, variable annuities, and long-term care insurance to Allgen’s retirement asset management practice.

Kathryn is a graduate of Transylvania University in Lexington, Kentucky where she earned a Bachelor of Arts degree with dual majors in Accounting and Computer Science. Kathryn began her career as an internal auditor and held various positions throughout her career including Y2K Technology Project Vice President for AmSouth/Regions Financial Bank.

Senior Partner Paul Roldan said, “We are excited about having Kathryn Hite on our team. She provides a great blend of strong analytical skills and practical solutions to those in need of financial planning and investment guidance. Our future looks even brighter with Kathryn as a member of our team.”

Kathryn can be reached at (407) 210-3888 or hite@allgenfinancial.com.

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Swine Flu and the Reality

Allgen Financial — Wed, 29 Apr 2009 23:13:48 +0000

If anyone has watched the news in the last six months, things would appear to be apocalyptic. Some of the main headlines you would have witnessed would be ”Credit Crisis”, “Record Foreclosures”, “Bernie Madoff – Biggest Ponzi Scheme of all Time”, “Greatest Stock Market fall since the Great Depression”, “25 Year Highs in Unemployment”, “Massive Bank Failures”, “401k’s Down 50%+” and the latest…”Swine-Flu Pandemic”. That’s enough to make a person feel like the world is coming to an end. In fact, many people are convinced we are approaching the “end of times” - there are close to 1 billion searches on Google for some variation of an “end of times” scenario. I won’t try to sugar coat what has occurred over the last year or so as the world has gone through some difficult times, but I will highlight some positives that you rarely hear in the main stream media. For starters, did you know the over the last month there was a 15 day period where the S&P 500 had it’s biggest rally since the Great Depression? In fact, since the recent low in the market the S&P 500 is up over 25% and the NASDAQ is up over 32%.

Here are some things to keep in mind as you listen to some of your family, friends and most importantly the main stream media. Media outlets gain higher ratings over panic-type news so it is only logical for them to exaggerate any story. This causes a chain reaction that develops into a negative feed-back loop. As people hear the story’s from the media of mass losses in the stock market, rising unemployment, bank failures, etc. combined with actual experiences of losses or hearing from a friend or family member of losses or hardships that they’ve experienced this will cause people to believe things are worse than they actually are. Remember that this happens on a massive scale and will create what’s called herd-like behavior. Then, after the “herd” processes all the information they will tend to do the opposite of what the “bigger”, “smarter” money does – they sell their stocks and go defensive. Unfortunately the herd is usually wrong and almost always wrong at extreme points in the history of the stock market (I would consider recent times as an extreme point). When fear is at its highest point the market usually bottoms. This phenomenon occurs because the herd acts on the present and the past and the “smart” money acts on the perceived future. The “smart” money takes advantage of the panic and of the herd by buying stocks after the panic selling, which gives the smart money the chance to buy low. The same mentality happens at market peaks, as well. When everything seems to be going great and the media continues to highlight how great the market is doing (like the tech bubble in the late 90’s), that is when the “smart” money is selling and becoming defensive and unfortunately that is when the herd is buying into stocks.

Some measurements of fear that we track have recently hit 21 year highs and even after the markets recent sharp rally fear indicators are still measuring at extremely high levels. Most would think this is a bad thing, but I’m telling you that this is a positive and a reason to believe the market could go much higher from here. On top of that the pundits in the main-stream media doubt this rally and most are saying that the market will come back down. This too, is a positive, as the herd is usually wrong at extreme points throughout history. As most of the herd has recently gone defensive, Allgen has been aggressively buying over the last month to take advantage of the recent rally and the high potential for future gains. History has shown that the biggest market rallies follow the biggest market drops; unfortunately the herd is usually late to the party and won’t participate in the majority of the gains.

Going forward our advice is to be skeptical of what the media is saying and what the herd is doing especially at extreme points in time. History shows that you’re usually better off doing the opposite of what the herd does.

Written By:
Jason Martin, CMT & CFP
Chief Investment Officer
Allgen Financial Services, Inc.

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