A Special Letter To Clients

As we all know, timing the market is virtually impossible. However, there are times when prudent adjustments need to be made, now being one of them. There are 4 main issues that have me very nervous right now: February is typically an ugly month for performance (the 2^nd worst only to September), the "Post-earnings nap", the upcoming Sequester debate, and that the public is getting very bullish, aka increasing positive sentiment. 

The first one, ugly February, is pretty self-explanatory, and the "post-earnings nap" I covered in last week's newsletter. The sequester is the automatic $1.2 trillion in spending cuts that go into effect just 2 weeks from now if Congress cannot agree on a deal. Even though I do believe a deal will be reached in the 11th hour, the battle leading up to it will be downright horrid, reminiscent of last year's debt ceiling debate, which caused a massive sell-off in the market. All 3 of these are short term.

The increased positive investor sentiment has me concerned for the longer term. This is most visible through mutual fund flows. According to the Investment Company Institute, cash flow into equity mutual funds for January totaled $27.3 billion. That stands in contrast to the $6.9 billion outflow in Jan. 2012 and exceeds the $16.5 billion inflow during the first four weeks of 2011-a year that saw strong positive cash flows through early June.

This is very representative of late bull market behavior as the public almost always gets on board at the end of a run as institutional traders, often called the "smart money" sells to the unsuspecting public investor near the top. Believe it or not, there is a statistic that tracks this. Each week, block trades of 5,000 shares (institutional traders) or more on the NYSE are tracked as to whether they occur on plus ticks or minus ticks, with the former accorded a status as buys, while the latter are considered sells. And, for five of the six weeks so far this year, the ratio of ticks has been below 1.00, indicating a majority of trades occurring on minus ticks, that is, sales. In addition, Block Volume has been above the 10-week average, with one exception-the sole week when the block ratio was above 1.00.  

All of the above coincide well with my forecasts of a strong market through January, a pull-back in Feb, a resumption of the rally in March/April to new highs, followed by a more severe correction over the summer, and then a strong end of the year. Obviously these are not easy times for investors, but I intend to do everything in my power to properly position your investments to protect your portfolio during the bad times, and do well when it's safe.  

Now obviously this is not an exact science. There is no bell that rings, or alarm that sounds at either the top or the bottom. However given the impending hazards, I will be moving to more defensive positions, just for a few weeks. If I miss a little upside in order to avoid some of the danger, so be it. After all, part of Springer Investment Strategy is to "win by not losing". If you disagree, just let me know, and I will adjust your portfolio accordingly.  

Please feel free to give me a call with any comments or questions.

Cheers -Keith

P.S. We still have a few seats available for our next free investor workshop at noon this Saturday (the 10am is full). At this workshop, we will discuss The New Rules of Retirement For 2013, where the economy and markets are headed this year, as well as how the Springer Investment Strategy works by managing risk and delivering returns. If you would like to attend, let Brianne know ASAP. It will definitely fill up.