Since our last newsletter, the markets have drifted upward with extremely low volume and volatility.   Yesterday the S&P briefly exceeded the highs for the year before turning sharply down. The 1420-1425 level on the S&P is a very key area. A break above this level would likely lead to another significant push upwards. On the flip side, a failure here to push through would not bode well and would likely set the stage for a significant correction. A 5% to 10% correction would not be out of the question. The rally over the last couple of months has not been driven by an improving fundamental backdrop as revenue growth by reporting companies has generally disappointed and forward earnings have been scaled back. We hate to sound like a broken record but the whole reason for the current rally is the continuing hope that either the Fed or the ECB (or both) will come to the rescue with more market liquidity and stimulus. That said, markets can remain irrational for long periods of time. However, by our work this looks more like a topping process than the start of a new bull advance.

There is little in the way of economic news this week and all eyes are fixated on the Fed's meeting at Jackson Hole. The meeting runs from August 30 - September 1. Whatever the announcement, it will make for an interesting Labor Day weekend. It would not be surprising for the market to continue to drift within a tight range over the next several days as investors await the Fed announcement. Nobody knows what the Fed will announce but we would be surprised if a firm commitment of another round of easing is imminent and that realization could spark a sharp down move.

We have made very few changes in our portfolios over the last couple of weeks. We continue to hold low volatility bond and equity funds. The bond funds have been hurt a bit by rising treasury rates but we feel that rates have stabilized for now and, like the rest of the market, await the Fed announcement. We have missed some of the most recent market move but while missing a short term opportunity is certainly disappointing - it is far easier to make up a missed opportunity than to try and regain lost capital. As risk managers, our job is to manage the risk to create absolute returns over the long term - not relative returns in the short term. We are well positioned should the market turn lower and will make adjustments should the market break to the upside.

ANOTHER STOCK INDEX - After closing above 3000 on 12/11/00, the NASDAQ Composite did not close above 3000 again until 3/13/12 or 11 � years later. The index closed back over 3000 on August 7th and has remained above that level through yesterday. The NASDAQ Composite is an unmanaged index of securities traded on the NASDAQ system (source: BAM Research).  

TWICE AS MUCH - After increasing the nation's debt ceiling limit to $16.4 trillion on 1/31/12, the United States has more than doubled its debt ceiling limit in less than 6 years. The debt ceiling was $8.2 trillion as of 2/28/06 (source: Treasury Department).

SPEND, SPEND, SPEND - The 10 largest monthly deficits ever in the history of the United States have occurred since February 2009, including the all-time monthly record deficit of $232 billion from February 2012 (source: Treasury Department).

BAD TIMING - American Olympic sprinter Tyson Gay finished 4th at 9.80 seconds in the men's 100-meter dash on 8/05/12, missing out on an Olympic medal by 1 one-hundredth of a second. Gay's time would have won every 100-meter final in Olympic history (going back to 1896) except for 2008 when his time would have placed 2nd (source: London Olympic Games).

School is in full swing and this past weekend we spent the better part of Sunday getting Emily settled into her dorm room at Belmont University. She was very excited to once again taste the freedoms of living away from mom and dad. Ignorance is bliss so I am just assuming that she is in her room studying every night and in bed by 10. It was a smooth move-in and the weather cooperated with cool temperatures. It was also my birthday (my 46th) so we celebrated a bit after the move in. Carter and Sarah began school last week but Carter has been slowed by a broken wrist that he suffered skim boarding at the beach. Unfortunately, it is his right hand and he is now trying to learn how to write left handed. It is not a pretty sight. His handwriting was bad enough with his right hand! He comes by it naturally as my only D in school came in 3rd grade handwriting. Mine hasn't improved much over the years. It has been a breakneck pace here but Kelly and I are hopeful that things will slow down soon - of course, we have been saying that for the last 10 years! We are forever hopeful.

Sam and Bo

We continue to make posts to our blog throughout the week so check it regularly if you want to see our thoughts.  You can access it by following the link below. 

In these uncertain times, a trusted financial adviser is more important than ever.  Whatever comes over the upcoming months and quarters, the markets are certain to have lots of volatility and wild swings.  Europe, the US economy and upcoming fiscal cliff, continued trouble in Iran and the Middle East, and a presidential election to name just a few.  If you have family, friends and neighbors that may benefit from our services, would you please forward this email and/or provide our contact information to them.  We purposefully do not spend time marketing our services so that we can devote all of our resources to managing your assets.  Thank you to all who have provided us referrals - it truly is the greatest compliment you can give us.      

Remember to visit our blog for market comments and observations in between newsletters.  We try to provide a few comments in between newsletters and certainly when there is a particularly interesting market day.  You can access it by clicking here. 

Published by Sam C. Bills, Jr.  Copyright � 2008 Bills Asset Management.  All rights reserved.

BAM Market Wrap is produced and distributed regularly via email by Sam C. Bills, Jr. of Bills Asset Management  3001 Flagstone Drive, Franklin, TN 37069 Phone (615) 371-5928 Fax (615) 250-4903 - www.Billsasset.com

Bills Asset Management  is an independent registered investment advisor (RIA) not associated with any financial institution.  Data used in this publication is gathered from reliable sources, although completeness and accuracy cannot be guaranteed.  Performance results do not take into account any tax consequences and are not predictive of future results.  This publication does not give any specific investment advice, does not provide financial planning services, or consider any individual's financial situation, needs or goals.  This publication may not be reproduced or retransmitted in whole or in part without the consent of the author, Sam C. Bills, Jr.

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