Road ahead presentation 2012 revised

Growing and preserving wealth for generations

THE ROAD AHEAD FOR 2012THE ROAD AHEAD FOR 2012

The financial consultants of Zeller Kern are registered representatives and investment adviser representatives with and offer securities and advisory services through Commonwealth Financial Network, Member FINRA/SIPC, a registered investment adviser. Financial planning services and fixed insurance products and

services offered by Zeller Kern Private Wealth Management, Inc., a registered investment adviser, are separate and unrelated to Commonwealth. Zeller Kern Private Wealth Management Inc, 11335 Gold Express Drive, Suite 155, Gold River, CA 95630, 916-436-8270.

It’s Time To Play..It’s Time To Play..

Source: esquire.com, Clipart, Hark.com

Choose a Team NameChoose a Team Name

Be Creative!!Be Creative!!

Rules of The GameRules of The Game

1.1. Each table plays as a team. No mobile Each table plays as a team. No mobile devices allowed.devices allowed.

2.2. Points are given for correct answers Points are given for correct answers only.only.

3.3. Team with the highest dollar value Team with the highest dollar value receives a prize.receives a prize.

MoneyMoney

$100$100

MoneyMoney

On average, the life span of a $1 On average, the life span of a $1 bill is:bill is:

a.a. 18 months18 months

b.b. 3 years3 years

c.c. 5 years5 years

d.d. 6 months6 months

RecessionsRecessions

$100$100

During the last 20 years, the U.S. has During the last 20 years, the U.S. has been in a recession for a total of:been in a recession for a total of:

a.a. 5 years5 years

b.b. 12 months12 months

c.c. 8 years8 years

d.d. 26 months26 months

RecessionsRecessions

CreditCredit

$100$100

Negative financial information Negative financial information (excluding bankruptcy can stay on (excluding bankruptcy can stay on your credit report for:your credit report for:

a.a. 2 years2 yearsb.b. 5 years5 yearsc.c. 7 years7 yearsd.d. 10 years10 years

CreditCredit

IncomeIncome

$200$200

Which company was the first to Which company was the first to earn $1 billion in net income?earn $1 billion in net income?

a.a. Apple ComputerApple Computerb.b. General ElectricGeneral Electricc.c. Goldman SachsGoldman Sachsd.d. General MotorsGeneral Motors

IncomeIncome

InflationInflation

$200$200

According to the Bureau of Labor According to the Bureau of Labor Statistic’s Consumer Price Index Inflation Statistic’s Consumer Price Index Inflation Calculator, $1 in 1917 has the same Calculator, $1 in 1917 has the same buying power as $20.77 does today:buying power as $20.77 does today:

True or False?True or False?

InflationInflation

MillionairesMillionaires

$200$200

What percentage of millionaires What percentage of millionaires drive used cars?drive used cars?

a.a. 50%50%b.b. 25%25%c.c. 10%10%d.d. 80%80%

MillionairesMillionaires

StocksStocks

$500$500

The term “Blue Chip” comes from:The term “Blue Chip” comes from:

a.a. The skyThe sky

b.b. The color of the poker chip with the The color of the poker chip with the highest valuehighest value

c.c. The inside lining color of the royal The inside lining color of the royal crown belonging to Queen Elizabethcrown belonging to Queen Elizabeth

StocksStocks

HousingHousing

$500$500

What is the average home price in What is the average home price in Vancouver, B.C.?Vancouver, B.C.?

a.a. $58,000$58,000

b.b. $362,700$362,700

c.c. $165,450$165,450

d.d. $207,560$207,560

HousingHousing

Mutual FundsMutual Funds

$1000$1000

In what year did the U.S. mutual In what year did the U.S. mutual fund industry surpass $1 trillion in fund industry surpass $1 trillion in assets?assets?

a.a. 19991999b.b. 19841984c.c. 20072007d.d. 19901990

Mutual FundsMutual Funds

DebtDebt

$1000$1000

What is the current debt to GDP of What is the current debt to GDP of Japan?Japan?

a.a. 50%50%b.b. 78%78%c.c. 102%102%d.d. 229%229%

DebtDebt

Final JeopardyFinal JeopardyQuestionQuestion

CurrencyCurrency

CurrencyCurrency

How many ways are there to make How many ways are there to make change for $1?change for $1?

Our objective at this event is to review where we’ve been,

where we are, and where we may be going.

Our ObjectiveOur Objective

Topics To DiscussTopics To Discuss

• What We Were Saying Last Year• Where We’ve Been• What To Watch In 2012• Current Views On The Market• Our Advance & Preserve Process

The Big Story in 2011… Europe in CrisisThe Big Story in 2011… Europe in Crisis

Three main causes:Three main causes:• Excessive government spending leading toExcessive government spending leading to• Excessive government debt coupled withExcessive government debt coupled with• Slow economic growthSlow economic growth

And, let’s not forget another biggie…And, let’s not forget another biggie…

Monetary union without fiscal union.Monetary union without fiscal union.

“When the history books are written, 2011 may go down as the year when political risk trumped economics, earnings, and interest rates as the main force driving capital markets.”

--CNBC

What Were the “Pros” Saying for 2011?What Were the “Pros” Saying for 2011?

• David Bianco, Bank of America Merrill David Bianco, Bank of America Merrill Lynch, said "We're broadly bullish on U.S. Lynch, said "We're broadly bullish on U.S. equities. equities.

• Bob Doll, Blackrock, forecast low double-Bob Doll, Blackrock, forecast low double-digit returns, including dividends. “If we're digit returns, including dividends. “If we're wrong, I think our forecast is too low.”wrong, I think our forecast is too low.”

Sources: USA Today; CNBC; Yahoo! Finance

What Were the “Pros” Saying for 2011?What Were the “Pros” Saying for 2011?

• Dan Chung, Alger Funds, said stocks Dan Chung, Alger Funds, said stocks could rise more than 20 percent sometime could rise more than 20 percent sometime in 2011. in 2011.

• Binky Chadha, Deutsche Bank, forecast Binky Chadha, Deutsche Bank, forecast the S&P 500 would rise 23 percent and the S&P 500 would rise 23 percent and close 2011 at 1550.close 2011 at 1550.

Sources: USA Today; CNBC; Yahoo! Finance

Oops…Oops…

John PaulsonJohn Paulson… from … from a $3.7 billion profit in a $3.7 billion profit in 2007 and a $4.9 2007 and a $4.9 billion profit in 2010 to billion profit in 2010 to a 51 percent loss in a 51 percent loss in 2011.2011.

Sources: Bloomberg; Business Insider

Oops…Oops…

Meredith WhitneyMeredith Whitney… … went on national went on national television and warned television and warned “hundreds of billions of “hundreds of billions of dollars” of municipal dollars” of municipal bond defaults in 2011. bond defaults in 2011. The total through The total through December 13, 2011, a December 13, 2011, a meager $1.68 billion.meager $1.68 billion.

Sources: Bloomberg

Oops…Oops…Bill GrossBill Gross… bet heavily … bet heavily against U.S. Treasurys against U.S. Treasurys in mid-2011 only to see in mid-2011 only to see them become one of the them become one of the biggest outperforming biggest outperforming asset classes of 2011. asset classes of 2011. He issued a formal He issued a formal apology to clients in apology to clients in October saying, “I’m just October saying, “I’m just having a bad year.”having a bad year.”

Source: CNBC

Forecasting is Not Easy!Forecasting is Not Easy!

Economy was expected to grow 2.4 Economy was expected to grow 2.4 percent in 2008, instead, it shrank 0.3 percent in 2008, instead, it shrank 0.3 percent.percent.

In 2009, it was expected In 2009, it was expected to shrink 0.8 percent,to shrink 0.8 percent,instead, it shrank 3.5instead, it shrank 3.5percent.percent.

Source: CNBC

“When you make a prediction, never put a prediction time on it.”

--Marc Faber

What We Were Saying Last YearWhat We Were Saying Last Year

• S&P 500 range of 1325 to 1358 by Q1-Q2S&P 500 range of 1325 to 1358 by Q1-Q2• Market correction possible, aging cyclical Market correction possible, aging cyclical

bull marketbull market• Moderate GDP growth 2%-4%Moderate GDP growth 2%-4%• High unemployment remainingHigh unemployment remaining• Continued pressure on real estate pricesContinued pressure on real estate prices• Credit market challenges with states and Credit market challenges with states and

municipalitiesmunicipalities

What We Were Saying Last YearWhat We Were Saying Last Year

Were We Have BeenWere We Have Been

Significant declines across all equity indexes occurred during the year.

Measuring from the April 29th high, to the low achieved on October 3rd:

S&P 500 Index: -19.39%Russell Mid Cap Index: -23.92%Russell Small Cap Index: -28.82%MSCI EM Index: -29.22%MSCI EAFE Index: -22.27%

Market PerformanceMarket Performance

The Four Phases Of A Secular The Four Phases Of A Secular Bear MarketBear Market

Long-Term View

Past performance is no guarantee of future results.

India,China,

andHong Kongwere Best

Performers

Between 2000 and

2011.

Q Ratio and Market Q Ratio and Market ValuationValuation

Frequency of DeclinesFrequency of Declines

NumberNumber Average FrequencyAverage Frequency

Bear MarketsBear Markets 1111 Once every 6.3 yearsOnce every 6.3 years

CorrectionsCorrections 2222 Once every 3.1 yearsOnce every 3.1 years

Bear Markets and Bear Markets and CorrectionsCorrections 3333 Once every 2.1 yearsOnce every 2.1 years

The S&P 500 Index is a capitalization-weighted index of 500 widely-traded stocks. Created by Standard & Poor’s, it is considered to represent the performance of the stock market in general. It is not an investment product available for purchase. A bear market is defined as a 20% decline in an index from its previous peak. A bear market ends when the index reaches its low and subsequently rises by 20%. A bull market is defined as a 20% rise in an index from its previous low. A bull market ends when the index reaches its high and subsequently declines by 20%. A correction is a decline of at least 10%, but not more than 20%, in an index. Corrections only occur during bull markets.

Sources: Standard and Poor’s; American Century

Stock Market Up Sharply Stock Market Up Sharply From March 2009 LowsFrom March 2009 Lows

Past performance is no guarantee of future results.

Current Market Not Current Market Not Tracking Past Mega-BearsTracking Past Mega-Bears

Where We Are Now

• S&P 500 IndexS&P 500 Index +2.1%+2.1%• Russell Mid Cap IndexRussell Mid Cap Index -1.5%-1.5%• Russell Small Cap IndexRussell Small Cap Index -4.2%-4.2%• MSCI Emerging Markets IndexMSCI Emerging Markets Index -18.2%-18.2%• MSCI EAFE IndexMSCI EAFE Index -11.7%-11.7%• 10-year Treasury Note Yield10-year Treasury Note Yield +1.9%+1.9%• Gold (per ounce) Gold (per ounce) +11.6%+11.6%• DJ-UBS Commodity IndexDJ-UBS Commodity Index -13.4%-13.4%

Sources: Yahoo! Finance; Russell; Barron’s; djindexes.com,;London Bullion Market Association; Treasury.gov.

2011 Performance

Where We Are Now

Negatives:Negatives:• Unemployment rate, Unemployment rate,

while improving, is while improving, is still high.still high.

• Economic growth is Economic growth is still modest coming off still modest coming off a major recession.a major recession.

• Euro-area sovereign Euro-area sovereign debt problems remain.debt problems remain.

• Housing is still weak.Housing is still weak.

Sources: Bureau of Labor Statistics; Barron’s; The Wall Street Journal

Where We Are Now

Positives:Positives: Retail sales have Retail sales have

been solid.been solid. Consumer debt Consumer debt

load is easing.load is easing. Consumer Consumer

confidence hit an confidence hit an eight month high eight month high in December.in December.

After-tax corporate After-tax corporate profits are at a profits are at a record high.record high.

Sources: CNBC; St. Louis Fed; Bloomberg

“More than any other time in history, mankind faces a crossroads. One path leads to despair and utter hopelessness. The other to total extinction. Let us pray we have the wisdom to choose correctly.”

--Woody Allen

2012 Surprises From 2012 Surprises From Doug KassDoug Kass

1.1. The U.S. stock market The U.S. stock market approaches its all-time high in approaches its all-time high in 2012.2012.

2.2. The growth in the U.S. economy The growth in the U.S. economy accelerates as the year accelerates as the year progresses. progresses.

3.3. Former Presidents Bill Clinton Former Presidents Bill Clinton and George Bush form a and George Bush form a bipartisan coalition that bipartisan coalition that persuades both parties to unite persuades both parties to unite in addressing our fiscal in addressing our fiscal imbalances. imbalances.

Source: thestreet.com

Goldman Sachs 2012 Goldman Sachs 2012 ForecastForecast

1.1. 2012 U.S. real GDP up 1.8 percent, and 2012 U.S. real GDP up 1.8 percent, and global GDP up 3.2 percent.global GDP up 3.2 percent.

2.2. 2012 S&P 500 operating profits of $100 a 2012 S&P 500 operating profits of $100 a share.share.

3.3. Year-end 2012 S&P 500 price target at Year-end 2012 S&P 500 price target at 1250.1250.

4.4. 2012 inflation of +1.7 percent.2012 inflation of +1.7 percent.

5.5. 2012 closing yield on the U.S.10-year 2012 closing yield on the U.S.10-year Treasury note at 2.50 percent.Treasury note at 2.50 percent.Source: thestreet.com

What To Watch in 2012What To Watch in 2012

Global EconomyGlobal Economy1.1. Possible recession in Europe Possible recession in Europe

(Austerity).(Austerity).

2.2. Risk that the euro crisis could Risk that the euro crisis could deepen (Wildcard).deepen (Wildcard).

3.3. Slower growth in China (Property Slower growth in China (Property BubbleBubble??).).

4.4. Continued record corporate profits in Continued record corporate profits in U.S. (Revert to meanU.S. (Revert to mean??).).

Source: The Wall Street Journal; St. Louis Fed


U.S. Housing MarketU.S. Housing Market1.1. Housing starts are still near record Housing starts are still near record

lows.lows.

2.2. Housing prices are still falling and at Housing prices are still falling and at about the same level as mid-2003.about the same level as mid-2003.

3.3. ““Shadow” inventory of 3.4 million Shadow” inventory of 3.4 million homes that are either being homes that are either being foreclosed on or in delinquency may foreclosed on or in delinquency may keep a lid on the housing recovery. keep a lid on the housing recovery.

Sources: The Wall Street Journal; Standard & Poor’s; St. Louis Fed

HousingHousing

Home SalesHome Sales


U.S. Job MarketU.S. Job Market1.1. Unemployment rate still hovering in Unemployment rate still hovering in

the 8.5-9.0 percent range.the 8.5-9.0 percent range.

2.2. Projected job growth in 2012 will Projected job growth in 2012 will only keep pace with population only keep pace with population growth.growth.

3.3. Structural mismatch between skills Structural mismatch between skills of the unemployed and the skills of the unemployed and the skills demanded by employers.demanded by employers.

Source: The Wall Street Journal; Bloomberg

UnemploymentUnemployment


Federal, State, and Local Federal, State, and Local Government Belt TighteningGovernment Belt Tightening

1.1. It’s a “good news, bad news” It’s a “good news, bad news” situation.situation.

2.2. Good news that budget cuts may Good news that budget cuts may help reduce deficits.help reduce deficits.

3.3. Bad news that lower government Bad news that lower government spending may reduce economic spending may reduce economic growth in the short term.growth in the short term.

Sources: The Wall Street Journal; St. Louis Fed

Where Are We Going?Where Are We Going?• S&P 500 key target 1,376, extreme S&P 500 key target 1,376, extreme

1,5111,511• Technical patterns are becoming Technical patterns are becoming

positivepositive• Muted uneven economic growth in Muted uneven economic growth in

20122012• High unemployment remainingHigh unemployment remaining• Continued pressure on real estate Continued pressure on real estate

pricesprices• Credit market challenges with states Credit market challenges with states

and municipalitiesand municipalities

Intermediate Term Projections for S&P 500Intermediate Term Projections for S&P 500

Long Term Projections for S&P 500Long Term Projections for S&P 500

Bob Farrell’s 10 Market Rules Bob Farrell’s 10 Market Rules to Rememberto Remember

1.1. Markets tend to return to the Markets tend to return to the mean over time.mean over time.

2.2. Excesses in one direction will Excesses in one direction will lead to an opposite excess in lead to an opposite excess in the other direction.the other direction.

3.3. There are no new eras–There are no new eras–excesses are never permanent.excesses are never permanent.

Source: MarketWatch


4.4.Exponential rapidly rising or Exponential rapidly rising or falling markets usually go falling markets usually go further than you think, but they further than you think, but they do not correct by going do not correct by going sideways.sideways.

5.5.The public buys the most at the The public buys the most at the top and the least at the bottom.top and the least at the bottom.

6.6.Fear and greed are stronger Fear and greed are stronger than long-term resolve.than long-term resolve.Source: MarketWatch


7.7. Markets are strongest when they are Markets are strongest when they are broad and weakest when they broad and weakest when they narrow to a handful of blue-chip narrow to a handful of blue-chip names.names.

8.8. Bear markets have three stages–Bear markets have three stages–sharp down, reflexive rebound, and a sharp down, reflexive rebound, and a drawn-out fundamental downtrend.drawn-out fundamental downtrend.

9.9. When all the experts and forecasts When all the experts and forecasts agree— something else is going to agree— something else is going to happen.happen.

Source: MarketWatch


10.10. Bull markets Bull markets are more fun are more fun than bear than bear markets.markets.

Source: MarketWatch

“When dealing with people, remember you are not dealing with creatures of logic, but creatures of emotion.”

--Dale Carnegie

Advance & Preserve Investment ProcessAdvance & Preserve Investment Process

A capital preservation model with an A capital preservation model with an offensive strategy.offensive strategy.

A risk balancing process to capture A risk balancing process to capture growth when the market is rising and growth when the market is rising and protect capital when the market is falling.protect capital when the market is falling.

Employs a strict buy and sell discipline.Employs a strict buy and sell discipline.

No strategy ensures a profit or protects against a loss. Investing involves risk including the loss of No strategy ensures a profit or protects against a loss. Investing involves risk including the loss of principal. Past performance is no guarantee of future results. Observed market movement may not principal. Past performance is no guarantee of future results. Observed market movement may not persist in the future. There is no way to determine the “right” time to enter or exit the market. persist in the future. There is no way to determine the “right” time to enter or exit the market. Signals for offensive/defensive action may be inaccurate.Signals for offensive/defensive action may be inaccurate.

Advance & Preserve Investment Advance & Preserve Investment ProcessProcess

There is no guarantee this strategy will meet its objectives. The strategy does not guarantee a profit or guarantee protection against a loss. This illustration is hypothetical and is intended to illustrate the strategy only. The “right” entry or exit point is not guaranteed.

QuestionsQuestions

Source: virulentwordofmouse.wordpress.com

And The Winner And The Winner Is…….Is…….

The financial consultants of Zeller Kern are registered representatives The financial consultants of Zeller Kern are registered representatives and investment adviser representatives with and offer securities and and investment adviser representatives with and offer securities and

advisory services through Commonwealth Financial Network, Member advisory services through Commonwealth Financial Network, Member FINRA/SIPC, a registered investment adviser. Financial planning FINRA/SIPC, a registered investment adviser. Financial planning

services and fixed insurance products and services offered by Zeller services and fixed insurance products and services offered by Zeller Kern Private Wealth Management, Inc., a registered investment Kern Private Wealth Management, Inc., a registered investment

adviser, are separate and unrelated to Commonwealth. Zeller Kern adviser, are separate and unrelated to Commonwealth. Zeller Kern Private Wealth Management Inc, 11335 Gold Express Drive, Suite 155, Private Wealth Management Inc, 11335 Gold Express Drive, Suite 155,

Gold River, CA 95630.Gold River, CA 95630.

Thank you!Thank you!

Road ahead presentation 2012 revised

Economy & Finance

Transcript of Road ahead presentation 2012 revised