A volatile week at last

The media continues to amaze me by comparing opinions based on current perceptions of a scandal to George Orwell’s novel Nineteen Eighty-Four. If they are monitoring my phone calls I hope they had plenty of black coffee to help stay awake. In my opinion, this is a one sided topic against deficits while ignoring anything to do about encouraging growth.

Last week the markets took a roller-coaster ride and volatility returned to the markets. After a 300 point swing, the markets ended with an up note. The cause of this was interesting from the standpoint that a not too hot, not too cold employment report quieted the fears of the Federal Reserve letting up on the gas and submarining the economy. The so called experts of financial journalism spent days discussing comments made by Mr. Bernanke as if the easing would start the next day!

I am not going to go into all the various indicators I use to value the current market. I’ve been told mathematical formulas are not very interesting, so bottom line we are still undervalued. Looking back to 2004, we can get a feel of how equities reacted when the Fed started to normalize their monetary liquidity stance to a more normal neutral rate. Over the next 12 months this cycle will begin but it will be gradual as Uncle Ben tests the waters.

Recent moves up in the forward P/E (price to earnings valuation based on the next 12 months) has now reached levels that have only been exceeded in the 1996 to 2005 environment. When you couple this with the low inflation outlook they are still too low. This is the result of lower inflation and higher productivity and lower rates.  Using the forward P/E calculation the P/E should be 17.8 when the earnings on the S&P 500 is 116.30. Therefore, the market should be at 2070 instead of 1645. Now this calculation is not perfect but obviously the continued upward bias of the markets could be intact for an extended period.

Bill

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About billriley

Chief Executive Officer, Chief Compliance Officer A co-founder and shareholder, William Riley is a 33 year industry veteran, who observed, many years ago, that over time institutional investors typically outperform individual investors while accepting less risk. In his role as Chief Executive Officer, Bill works tirelessly to make the wealth management strategies used by the world’s wealthiest families and largest institutions available to our firm’s individual clients. Bill combines fundamental and technical analysis to minimize investment portfolio risk and maximize potential returns. He uses a variety of non-correlated asset classes, including alternative investments, to minimize portfolio volatility and seek absolute returns in down or flat markets. Finally, Bill believes in a comprehensive approach to wealth management that fully coordinates and seamlessly integrates portfolio management, risk management and asset protection, trust, estate, tax and charitable planning. Prior to co-founding Riley Wealth Management ,LLC, Bill held management positions at Merrill Lynch, UBS, Raymond James, Paine Webber and J.C. Bradford. Bill founded Fort Worth branches for Raymond James and J.C. Bradford. Prior to entering the financial services industry, Bill ran his families closely held businesses. Bill’s experience operating family businesses combined with his wealth management experience makes him uniquely qualified to advise entrepreneurs and business owners on a variety of matters including complex and sensitive issues relating to business succession. Bill’s degrees and designations included a Masters Degree in Business Administration (MBA), the Chartered Financial Consultant designation (ChFC), the Chartered Life Underwriter designation (CLU) and the Wealth Management Specialist designation (WMS). A Fort Worth native, Bill is a TCU alum and active in many civic and charitable organizations. Bill and his wife, Marsha, now reside in Colleyville, and they have four grown children and four grandchildren. When he is not working on portfolios or studying financial markets, Bill can be found on the golf courses of Ridglea Country Club.
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