Small Time Blog

Smalltime's 2015 Economic Outlook

by Bradley Voight on 01/14/15

This is the year of the interest rate hike. What interest rate? The federal overnight funds rate that has been held below .25 (or 25 basis points) for 5+ years. The financial world panics every time the rate hike is mentioned. They want to know exactly when and how much the rate will go up and the Fed under Bernanke, and now Yellen have repeatedly said over the last few years or so that any rate increase would be small and it would only happen when the economic data support it, the data being the unemployment rate, wage growth and GDP growth among others.

Smalltime thinks that the rate will be moved in .25 point increments with the first one coming in the mid-summer. This will be after two more quarters of 5% annualized GDP growth following the third quarter of fiscal 2014. Here is the one reason I think this is going to happen: Freight Flow. I-65 and I-70 are loaded with trucks but three types of trucks in particular tell the economic story. 1. Flatbeds with new heavy machinery and other specialty freight.

2. Plain white, brand new 48' and 53' trailers, denoting independent truckers reentering the market

3. Leased trailers. There are an increasing number of leased trailers on the road. a local leasing company, Premier Trailer Leasing had a 50 acre lot full of trailers last spring and it looks like a ghost town now.

President Obama, like him or not, has presided over the longest continuous stretch of private sector job growth in US history. I am a political atheist to quote Gerald Celente, a well known trends researcher, I think both parties work for each other so I credit the economy not to a party or a leader but to the business cycle. "Every thing good needs replacin" as Dave Mathews says, but I say everything old needs replacing and that means cars, IT, infrastructure, fire trucks, municipal water works across the nation, and the list goes on. It all needs replaced and if the threat of interest rate hikes are real, then you will see investment tick up to beat rising rates.

Currency fluctuations and the drop in oil prices have caused turmoil in equity markets. Until we hear from corporate America this quarter as to how these developments have either helped or hindered profits and profit growth, we won't know but I suspect we will hear that low oil prices help most companies. Continued liquidity from foreign central banks will keep equity markets rolling in 2015 and the S&P 500 will end the year at or near 2275 after rough sailing, but it is the Russell 2000 that will hit all time highs throughout the year closing near 1450. Gold and silver will crack and break below $1000 and $13 respectively.

There must be a word or two on black swan events. Smash Mouth says "My worlds on fire, how about yours? That's the way I like it and I'll never get bored" and I agree. Ecclesiastes 7:10 says, Do not say "Why has it happened that the former days proved better than these?" for it is not due to wisdom that you asked about this. I tend to agree, there are no 'good ole days', the here and now are the best days we have. In the coming year there will be wars and terror events and atrocities untold but until an asteroid hits our fine Mother Earth, I am going to continue to look for the good in humanity and strive to be the best person I can be in the new year and beyond and I hope you will do the same.

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Smalltime's 2014 S&P 500 Forecast Closer than the Experts

by Bradley Voight on 01/01/15

In our 2014 economic preview, we said that the S&P 500 would end the year at 2110. The S&P 500 reached 2093.55, just 16.45 points from our call, on December 29th then shrunk back to end the year at 2058.90. Here is what the experts had to say.

I am not a trained economist nor am I a finance major. In fact I'm not even that good at math, but despite not having a degree I do have 3+ years of college with a 2.7. Nothing to write home about so why am I doing this? The business world fascinates me and I have devoted nearly all of my spare time over the last 3+ years to learning about the ins and outs of corporate finance and along the way I learned about currency trading, which taught me about the bond markets of the nations of the world. I learned about the metals markets through my recycling hobby and I drive for a living so I see the freight flows on I-65 and I-70, so I put all of it together and took a stab at a prediction. I was not as close on the Dow or the NASDAQ, but the S&P 500 is widely recognized as the best benchmark of the broader economy and I felt that 2014 would be the best year yet since the downturn.

Stay tuned for our 2015 economic outlook. Just a hint, I think it will be a much better year economically, but it is the Russell 2000 that will make the double digit advance in 2015. Volatility will make a return to the S&P and that's all I can say for now.

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Evolution of an Investor: Lessons from the First Three Years

by Bradley Voight on 10/24/14

In July of 2011 I opened a Scottrade account armed with $11,000, a dream of great riches and very little, if any, useful knowledge. I picked some good companies with solid earnings. I jumped right in....and out, and in, and out like a cricket on a hot blacktop driveway. Then came the promotional email penny stock news letters. I still have 3 "companies" the stocks of which are worth a combined $1.86 all thanks to boiler rooms run by wolves of wall street. Three times a fool was all it took for me to learn this valuable investing lesson: NEVER BUY A STOCK SOMEONE IS ADVERTISING VIA EMAIL OR ANY OTHER MEANS. The best way to avoid being sold to is to be a picky shopper. No one can force you to buy anything you don't want to own. Take my advice to heart here; find your own companies and research them carefully.

Having withdrawn $3000 to buy a truck I was left with $8000. From there I am now at $5800. That is minus $2200, but it is the best $2200 I've ever spent. It beats the hell out of the $29,000 I spent on college to no avail. It is what is referred to in the industry as market tuition. The return on that $2200 loss will be realized over time, but only if I heed all the lessons I've learned in 3 short years and keep an open mind to new knowledge. Investing is a humbling experience that teaches you to know thyself by exposing your weaknesses and neurotic tendencies.

I now have 3 accounts. One at Scottrade, one at TradeKing, and one at Vanguard. The Vanguard account is a traditional IRA and it is where the hard lessons learned from the other two accounts are being tested.

By far the best thing I have done is taken Jim Cramer's advice and started trading/managing a simulator account. Investopedia.com has one but there are many out there and they are all free. The practice I am getting by 'paper trading' as it is known in online investing circles has sharpened my focus and awareness. When I have a large winner I start whittling in 1/4's. If I had 2000 shares and the stock goes from $10 to $14 I sell 500 shares; from $14 to $17, then I sell 500 more. 2000 shares @ $10 is $20,000; my two sales @ $14 and $17 net me $15,500 and I still have 1000 shares left that I bought for $4500, less than half of what I would have paid for 1000 shares @ $10!! I then hold that 1000 shares as a core position. That example was exactly what I did with ENPH, a solar company that I believe in in the long haul that had a quick jump to $17, I also own the 100 shares of ENPH in my IRA. Practice makes perfect in whatever you choose to try to master.

I mention Jim Cramer because his central message, beyond the hype and bells and whistles, is that you can manage a diversified portfolio of 5-8 high quality high earning companies. Building and trading around those core positions you can beat market indexes and over-diversified mutual funds. I am 100% convinced he is right on this one.

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My Case For the Dow to Crest 20,000; S&P 2220

by Bradley Voight on 05/27/14

My case is simple, and it is a 4 fold reason.

1. "Obamacare" aka, the Affordable Care Act was written by insurance companies, whos' board members serve on countless other corporate boards. The purpose of this law is to get companies out of the insurance obligation. This cost savings for corporations will go right to the bottom line and corporate balance sheets will improve without having to sell any additional widgets. In 5 years there will be no employer sponsored plans left and we will be well on our way to the single payer system.

2. The 10 year US treasury note will struggle to break 2.75% over the next 3 to 5 years. Investors will be forced into stocks world wide, but particularly US equities, simply because they are perceived to be safer than emerging stock indexes. Solid dividend payers will be in high demand driving down dividend yields across the board. Stocks will continue to be the only pig with lipstick over the next 3-5 years.

3. World wide central bank largess will continue indefinately. Dilution of currencies will continue well into the near future with the European central bank (ECB) getting into the act to bring the Euro closer to parity with the US dollar. I think the Euro will go to around $1.12 over the next year or so. Dilution of the money supply is just like dilution of shares; it raises money for the issuer and the shareholder loses out. Inflation will become a factor after the party ends in a couple of years and it could get ugly world wide.

4. Technological advances and clean energy revolution. Whenever old industries die and new ones are born, money that has been in blue chips that have increased for decades starts to rotate into new companies many of which are listed in the Russell 2000 index, which we have also seen power to new highs. This rotation into smaller companies will drive the market over the next 3-5 years

So why does this matter to anyone? If you are exposed to stocks through a retirement account then you win, If you are afraid of stocks and don't even own mutual funds or ETF's then you will not benefit at all.

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Smalltime Model Portfolio Carnage

by Bradley Voight on 05/09/14

A broader market pullback and subsequent sideways trade has wreaked havoc on smallcap stocks. The Smalltime Model Portfolio has been especially hard hit. Ill advised out of the money calls purchased on Alcoa are set to expire out of the money and totally worthless which adds to the misery. I have seen this before and here it is again, the stocks I bought are going down but yet that does not mean I am wrong about the companies I have chosen. The stock market is full of different players with different reasons for owning, buying, and selling stocks. In the short term stocks can fluctuate wildly. What matters is earnings growth; when earnings grow, the stock price follows. I still believe in the underlying stories of the 5 companies in the Smalltime Model Portfolio, so there is no reason to panic sell.

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