CalRima Financial & Insurance Agency

These are are a series of various articles that are intended for educational purposes. These are not advice as giving advice would require knowledge of your personal situation. Please enjoy these and feel free to contact us if you have any questions.

Thought for the Week – Nov 14 2011  - Deal or No Deal

The period saw the political leaders in the U.S. and Europe reach broad agreement on the solutions to their
respective financial problems. We also started to see broadly favorable economic data: earnings continued
rising, employment started to creep upward again and China is heading for a soft landing, according to
both China’s President Hu Jintao and the International Monetary Fund (IMF)

Thought for the Week – Nov 7 2011 – The Bankers’ Panic: Plus ça change, plus c’est la même chose…

We did have a central bank before 1907. The First and Second Banks of the United States were central
organizations that aimed to create financial stability, including the federal backing of the various debts
amassed during previous wars.

Unfortunately, in 1907 neither The First nor The Second Bank of the United States could prevent
speculative asset bubbles and the excessive printing of money. And there was no FDIC in those days!

Thought for the Week – Oct 31 2011  - The Eighth Largest Bankruptcy in U.S. History

If you’ve never heard of MF Global Holdings, you may be surprised to learn that its Chapter 11 bankruptcy
filing on Monday is the eighth largest, by assets, in U.S. history.

Thought for the Week – Oct 10 2011 – We the 99% Occupy Wall Street

“Why should the 99% of normal tax-paying citizens suffer because “Wall Street” keeps paying massive bonuses while the same companies need tax payer support?” typifies their rallying tenet.

Thought for the Week – Oct 3 2011 - European Update

Despite the lack of any new facts, the Greek Debt Crisis continues to drag down Global Stock and Credit Markets. Considering Apple has reportedly enough money on its balance sheet to write a check tomorrow and clear the European bank exposure to Greece, the profound, far reaching effects of Greece’s financial problems is astounding…

Thought for the Week – Sept 26 2011 – Senior Secured Notes (Loans)

“Secured” means that these interest-paying (yielding) loans are backed by some form of collateral assets from the borrower. They are classed as Asset Backed Loans (ABLs) and are not secured on a mere “promise to pay.”
“Senior” means the loan ranks higher than (is senior to) most other claims in the event of bankruptcy. The loan is higher up the corporate capital structure compared to more junior debt and equity claims.
Senior Secured Loans are a class of corporate debt that has priority with respect to interest and principal over other classes of debt and over all classes of equity of the same issuer.
Therefore, the risk of a “Senior Secured” lender getting nothing in the event of a bankruptcy or restructuring of debt is lower than most other junior or unsecured forms of debt.

Thought for the Week – Sept 19 2011 – Fundamentals and Sentimentals

In volatile times, such as these, market watchers are bombarded with a wide range of conflicting opinions. One „expert‟ highlights the attractive investment values available while another similarly qualified authority forecasts the imminent end to investment valuations as we know them. As the old “Soap” TV program used to say: “Confused? You will be.”

Thought for the Week – Sept 12 2011 – QE3? – Interest Rates and Unemployment

Conversely, if the central bank feels the economy is stagnating, it can “ease money supply” by lowering interest rates, thereby penalizing savers and encouraging borrowing. Increased spending should then lead to a growing economy and more jobs – a simplified version of Keynesian Economics.

Thought for the Week – Sept 5 2011(1) – Labor to have its Day?

Employment is seen as a leading indicator for the economy and many markets as increasing employment generally leads to economic expansion. In most industries, you need more people to produce more, ignoring the effects of productivity.

Thought for the Week – Aug 29 2011- Growth vs Income?

Equity markets are at similar or lower levels to those seen in 2000; investors may still be experiencing the “Lost Decade” for consistent capital appreciation from stock markets. When the effect of inflation is taken into account, the loss in real net worth is even greater.

Thought for the Week – Aug 22 2011- Whose Advice can you Trust?

The total amount secretly loaned, according to a Bloomberg News compilation of data obtained through Freedom of Information Act requests, months of litigation and an act of Congress, equaled approximately $1.2 Trillion.  The $1.2 Trillion peak on Dec. 5, 2008 — the combined outstanding balance under the seven lending programs…

Thought for the Week – Aug 15 2011- 2008 Again? More like 1987.

Ever since equity indices “took off” in March 2009, we have regularly experienced price corrections without
excessive worry. Stocks, commodities and a number of other asset classes have been trending downwards
for a number of weeks; a phenomenon many described as…

Thought for the Week – Aug 8 2011- Market Update

The US downgrade superficially raises two main concerns. The first is the impact on interest rates – would
the downgrade increase the cost of borrowing for the U.S., thereby worsening the deficit and…

Thought for the Week – Aug 1 2011- A Cautionary Tale

The patriarch of the house established numerous ventures from the resources available: material, physical
and intellectual resources. Meanwhile the matriarch nurtured a growing family of progeny with strong family
and work ethics. As time progressed, so too did their wealth and influence…

Thought for the Week – July 25 2011- Bond Market Update

In actuality, the bond market is the area most income-based investors should be looking more closely at,
especially as the bond market doesn’t always follow the stock market. This week’s thought looks at recent
moves in the bond market and raises a few interesting points

Thought for the Week – July 18 2011- Singles and Doubles

With markets seemingly hanging on the edge of the debt ceiling debate, even though agreement between
Germany and France appears to have averted a banking crisis in Europe for now, it’s a natural reaction for
a conservative investor to worry about the short term efficacy…

Thought for the Week – July 11 2011- The Great Commodity Trade

For over two years now, we have focused a portion of our investment attention and allocation on an investment theme we call ICE-T: Infrastructure – Commodities – Energy – Technology.  We have maintained a belief that these four sectors, directly and indirectly, will experience significant growth over…

Thought for the Week – June 27 2011 -What Happens in Greece Stays in Greece – Right?

Throughout the Greek debt crisis, we have consistently played down the long-term economic effect of
Greece while buying or ignoring the periodic short-term market price drops their financial woes have
caused.  That said, we have not participated in the purchase of securities with a direct relationship to the
Greek or Euro debt issues. We are not making bets on the crisis…

Thought for the Week – June 20 2011 – The Credit Spread Trade

We regularly hear comments along the lines of: “I am worried about bond valuations if interest rates rise
but I am also worried that stocks may implode as they did in 2008. What can I do?”  This type of sentiment can lead investors to sell their…

Thought for the Week – June 13 2011 – You can lead an Economy to Water, but can you make it Create Jobs?

“The U.S. economy is recovering from both the worst financial crisis and the most severe housing
bust since the Great Depression, and it faces additional headwinds ranging from the effects of the
Japanese disaster to global pressures in commodity markets.  In this context, monetary policy
cannot be a panacea.”

Thought for the Week – May 23 2011 – Riding the Rollercoaster

Over recent weeks, it has felt like the market is dropping on a daily basis and investor sentiment is looking
to run for the Stock Market Exit Door. The chart of the S&P 500 shown below shows a drop of
approximately 3.0% between April 29th, 2011 and May 25th.  It also shows something of a Rollercoaster
ride since the start of the year.

Thought for the Week – May 16 2011 – Breaking Down Inflation

The mass media regularly presents financial and economic data as a single principle without explaining how the individual constituent components work. This can lead to misunderstandings when trying to use the “general” bulk data to predict what may happen next.

As in many areas of science and technology, if you really want to understand how a mechanism works, you should break it down and analyze its constituent components.

Thought for the Week – May 9 2011 – The Dollar and Commodities

Commodity prices have been moving higher and higher for some time now. This is fueling price inflation across the globe. Gold has risen to such a high that even Mr. T of the “A” Team is considering selling all his gold necklaces.

Thought for the Week – Apr 25 2011 – Heads you Win, Tails you Win…

Have you ever spent an enjoyable afternoon watching your favorite football team build a solid points lead through three quarters only to see them change their previously effective offensive strategy to a protective “Prevent Defense”? Usually, the opposition starts to come alive and the whole game changes.
Personally, it drives me crazy – I usually sit there questioning the mental aptitude of the coach. Why would he do this? Why not keep running the same aggressive approach and blow the opposition away?

Thought for the Week – Apr 18 2011 – Should You be Worried by the Downgrade in U.S. Credit Outlook?

This week, Standard & Poor’s, S&P to most investors, cut its long-term credit outlook for U.S. Government debt to Negative from Stable as a result of mounting concerns over the long-term financial health of our country.
With this change in credit outlook, S&P gave notice that if the current trend of government deficit spending continues, the U.S. may lose its AAA rating. S&P also made it clear that the current political gridlock was a key determinant in the outlook downgrade.

Thought for the Week – Apr 11 2011 - Kicking off the “Season”

The predominant theme this quarter is: can earnings continue their growth and therefore justify higher equity prices. As the primary method of calculating a stock’s value is Stock Price/Earnings Ratio or P/E Ratio, changes in a company’s earnings are important.

Thought for the Week – Apr 4 2011 - The Government, Banks and the Yield Curve

Those forecasting the end of economic recovery once the Government shuts off the monetary faucets may be premature. Quantitative Easing has really been about supporting the banking system, not creating jobs and stimulating the general economy.

Thought for the Week – Mar 21 2011 - Is the U.S. Stuck in a Liquidity Trap?

Basically, a Liquidity Trap is where a government pumps money into an economy but the people/organizations with spendable assets resist the temptation to spend/invest those assets. If the news is full of adverse events, civil unrest, natural disasters or predictions of falling demand, it’s easy to keep your money in your pocket.

Thought for the Week – Mar 14 2011(1) – Japan & DIAS

First and foremost, our Thoughts go to the people of Japan. A stark reminder of the power of Mother Nature and our relative position in the grand scheme of things. From the moment the disaster hit, we have been discussing the potential economic effects. The world‟s third largest economy has suffered a devastating blow and now faces an uncertain period. In most events of this nature, the people who stay the course come out ahead of the panic sellers. We feel this is the case with the Japanese nuclear and earthquake…

Thought for the Week – Mar 7 2011- Can an Injured Bull still Run?

Now that we have celebrated the second birthday of the Bull market recovery, it‟s a good time to try and gauge how far we have come and what might happen next. Understanding the strength of the recovery is a useful metaphor. How strongly and quickly the market recovers from bad news gives us an excellent insight into market sentiment and what may happen next…

Thought for the Week – Feb 28 2011- What is Investment Quality?

Quality is one of the most frequently used words in modern marketing materials. Prefixing a word with “quality-” immediately creates credibility; adding “high-quality” turns the original word into a superlative. However, this phrase rarely comes with the definition of “Quality”, unless it‟s J. D. Power.
So what do I mean if I suggest that we try to construct the “high-quality portfolios” on the street?

Thought for the Week – Feb 21 2011- Market Update: Oil in Troubled Waters

The recent turmoil in the Middle East has given us all cause for thought; some for humanitarian reasons and some for religious reasons. In our case, the effect various popular revolts may have on the world economy weighs heavily on our mind.

Thought for the Week – Feb 14 2011 – The Secrets of Dividend Hunting

If the dramatic equity bull market we have experienced for nearly two years has run its course with smaller, growth-type companies, more ‘boring’ larger companies may become increasingly attractive. In such a scenario, those companies paying an attractive dividend yield, in addition to offering the additional opportunity for reasonable capital appreciation will be worth considering

Thought for the Week – Feb 7th 2011 – Where Next for Equities?

Given the remarkable recovery of equity indices since the bottom in March 2009, we seem to have reached a point similar to April 2010; a point where many investors are questioning the sustainability of equities at these elevated prices. The chart below shows how far the S&P 500 has come in nearly two years.

Thought for the Week – Jan 31st 2011 – Stagflation and the Need for Inflation Protection

Let’s start with the Wikipedia definition of Stagflation:
…the situation when both the inflation rate and the unemployment rate are persistently high. It is a difficult economic condition for a country, because when inflation and economic stagnation are occurring simultaneously, a policy dilemma results since actions that are meant to assist with fighting inflation might worsen economic stagnation and vice versa.

Sound familiar?

Thought for the Week – Jan 24 2011 – Save the Date

At a time when the world’s economy appears to be consolidating its recovery and the International Monetary Fund (IMF) has revised this year’s global growth projections to 4.4%, up from 4.2%, we all realize prospects for 2011 depend on the efforts of individual and
collective government actions across the globe.

Thought for the Week-Jan 18th 2011- The Three Brilliant Strategies behind Warren Buffett’s Success

1. Who is the most respected financial company in America?

2. Who is the most respected investor in America?

The first question usually elicits two names: Fidelity and Vanguard. The second almost always draws the same response: Warren Buffet.
Last week, when an article circulated with the title: The Three Brilliant Strategies behind Warren Buffett’s Success, the opportunity to share was too great to resist. Regurgitating other people’s thoughts is not our normal modus operandi, but like Newton’s Three Laws of Motion, Buffet’s Three Laws of Investing are worth living by. Keep them close by for the next time the market…

Thought for the Week – Jan 3rd 2011 – “Stocks have reached what looks like a permanently high plateau”

No, this isn’t the Global Investment Team‟s prognosis for 2011 U.S. equity indices, it‟s a 1929 quote from Irving Fisher, the then Professor of Economics at Yale University. So why start out with this line? Do we think markets will be flat or are we just trying to be controversial? At a time when most investors are looking to the so-called “experts‟ to predict what will happen over the next twelve months, the purpose of the quote is to highlight the fact that all forecasts are subject to error. More worryingly, investment forecasts tend to beget managers to stick to strongly held views and close their minds to adapting to ever-changing market conditions.

Thought for the Week – Dec 13 2010 – Is “Risk Free” really without Risk?

Investment disclosure regulation allows financial advisors to describe the income paid by short-term U.S. Treasuries as the Risk Free Rate of Return. Although nothing is totally risk free, the fact that this…

Thought for the Week – Dec 6 2010 – Breaking Tax News…

If Death and Taxes are the only two certainties in life, as Ben Franklin once opined, most tax-paying American citizens may be about to receive a two year, temporary reprieve in the form of President Obama‟s Dec 6th statement on (a framework for) Tax Cuts and Unemployment. This addressed the burning “will they; won‟t they” question of whether the Bush Tax Cuts will be extended.

Thought for the Week – Nov 29 2010 – Early New Year’s Resolutions

As I stood in Starbucks a week before Thanksgiving watching the Festive decorations being installed I was amazed at how early the Holiday Season is now advertized. Not to be outdone, here are a few ideas for investment-based New Year‟s resolutions.For most of 2010 we felt like a child sat on a see-saw: Bond prices are high; bond yields are low. Moreover, the amount of money flowing into bonds keeps going up. The teeter will…

Thought for the Week – Nov 22 2010 – Please Give Thanks

In addition to the many deserving causes you may be offering thanks to this week, could you please spare a few moments to thank all those whose lives have been lost or dramatically changed because they chose to put their country before their own personal interests: the Ultimate Sacrifice.

Thought for the Week – Nov 15 2010 – DIAS Portfolio Changes

For DIAS investors and portfolios that seek asset appreciation ahead of income (the Growth Portfolios) the rapidly rising portfolio values we have experienced in the last year or two are a universal positive.
For investors in income-based portfolios, rising asset values are to be welcomed; however, the current portfolio yields have fallen pro-rata to price rises. For example, if a portfolio which yields $6 is valued at $100, when its value rises to $113 the yield for investors at the higher price will fall to 5.3%. Although this change in yield is immaterial to investors…

Thought for the Week – Nov 8 2010 – Are Stocks Overvalued?

As the stock market continues to rise, it‟s easy to start thinking it‟s overvalued. Human nature pushes us to consider selling stocks that have risen, and we’ve always been broad proponents of taking some profit off the table. However, this approach can lead to „market timing‟, wherein you sell some or all of a position, the market appreciation continues and you are now under-performing the market.

Thought for the Week – Nov 1 2010 – Three “Must-See” Events for this Week

This week brings three events that could have a profound effect on major markets over the next six months or more. Before we discuss each, remember markets don’t always perform as we might expect. Oftentimes, good news causes…

Thought for the Week – Oct 25 – 2010 -For the First Time Ever: You now have to pay to loan money to the U.S. Government!

This Monday, the U.S. Treasury auctioned $10 billion of 5-year Treasury Inflation Protected Securities (TIPS). Demand for these notes was so high, investors accepted a negative yield of 0.55% as their stated annual income.

Thought for the Week – Oct 18 2010 -Beggar thy Neighbor – the Race to the Bottom

This week, we look at how Governments, including our own, are devaluing their currencies to increase their global competitiveness, thereby increasing the growth potential for domestic companies.

Thought for the Week – Oct 11 2010 – Quantitative Easing Round Two (Q.E. II)

The 2008 recession brought about a dramatic reduction in U.S. Gross Domestic Product (GDP). Following this period, GDP rose strongly and began to reach “normal” levels.
This upturn in economic activity has convinced many that the recession is over and has caused the stock market to rally strongly. Unfortunately, it hasn’t done much…

Thought for the Week – Oct 4 2010 - First the Good News…and then the Bad News

Thought for the Week – Sept 27 2010 - Ten Factors you should Follow – Part II

Thought for the Week – Sept 20 2010 - Ten Factors you should Follow – Part I

Modeling Global markets across many asset classes, then trying to predict what might happen, is very difficult for a part-time investor/economist in these highly volatile times, never mind the professionals.

Thought for the Week – Sept 13 2010 - Looking Forward to Mid-terms

The return of our political leaders to Capitol Hill last week shifted our attention to the coming electoral campaigns building up to November 2nd. For the next six or seven weeks, expect a new factor to weigh on markets: Politics and Politicians.