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BAM MARKET WRAP

February 4, 2014
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DEFENSE WINS

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WHERE WE HAVE BEEN

In our last note, we talked about the historical and statistical evidence that January is often predictive of the remainder of the year. Let's hope that this year is an outlier! January ended on Friday and it was not pretty. For the month, the S&P was down 3.6% while the Dow was down over 5%. By any measure, it was a bad month. Turning the calendar to February didn't help as yesterday's losses extended the year's losses by an additional 2%. Yesterday's culprit was deemed to be weak economic data as the ISM Manufacturing report fell well short of expectations. For January, continued weakness in the emerging markets have weighed on the US indices. As noted over our last several notes, the recent weakness should come as no big surprise. The markets have risen without much pause for many months. They are due. The big question will be if the bloodletting can stop before more significant damage is done.

WHERE WE ARE HEADED

Technically the markets are getting a little oversold so a bounce here would not be unexpected. We are in a downtrend so a bounce would need follow-through and would need to clear the 1790 area on the S&P some 3% from yesterday's close. We think we have a bit more pain to come but will likely bounce a little first. It would not be unusual to have a 10-15% correction especially considering the gains of last year. Investors should be extra careful when the markets are weak and many already are thinking about selling. An external event or a surprise of any kind can lead to a sharp sell off that could go deeper than a garden variety correction. Obviously, caution should be taken here and investors should be prepared to take more defensive action if the sell-off accelerates.

HOW WE ARE DOING

Our portfolios have held up extremely well over the last month with only a fraction of the losses incurred by the market indices. We are close to having some of our sell stops triggered on a few of our positions. In fact, one of our positions hit that point yesterday and we have liquidated it. Similarly, we have taken additional defensive actions to protect our client assets. As seen in the Super Bowl on Sunday a good defense (apologies to Peyton) can often win the game. Now is the time to employ a strong defense.

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Tidbits
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ELEVEN MONTHS TO GO - At the end of 2013 (12/16/13), 10 Wall Street equity strategists forecasted the closing value of the S&P 500 as of 12/31/14. The predictions ranged from a low of 1900 to a high of 2100, with all 10 predicting that the stock index would rise in 2014 from its 12/31/13 close of 1848 (source: Barron's).

CAN YOU WAIT? - An individual that has earned income up to the maximum Social Security wage base each year who then waits to take his/her Social Security retirement benefit until age 70 will receive +77% more income per month than if he/she had taken a retirement benefit early at age 62 (source: Social Security).

DEBT - Total outstanding debt of the USA was $17.249 trillion as of 1/30/14, up from $17.076 trillion as of 10/17/13, the date that the debt ceiling was suspended per Congressional legislation signed following the 16-day government shutdown. Congress has had no debt ceiling since 10/17/13, but rather has permitted "normal spending" to occur through 2/07/14 (Friday of this upcoming week), at which time a new debt ceiling is to be agreed upon (source: Treasury Department).

BUDGET BASICS? - Our government's projected budget deficit for fiscal year 2014 is $750 billion. For every $1 of expected tax revenue, our government anticipates spending $1.25 (source: Treasury Department).

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Over the holidays, the kids joked with Kelly that she should just keep our Christmas tree up year round. Well, she has called their bluff! We are planning on keeping our tree up all year long this year and decorating it for the various holidays throughout the year. We will have a Valentines tree, a St. Patrick 's Day tree, Easter tree, July 4th tree, beach tree, etc... The possibilities are virtually endless! Arbor Day, Columbus Day and Labor Day may present some challenges but I think Kelly is up for it! I will chart the progress in these pages and will start our holiday tree installment with our Valentine's Day tree.

What must the neighbors think as they drive by the house and see Christmas tree lights in our foyer in February? What will they think in July!? On the positive side, I don't have to put the lights on in December! Here's hoping you have your tree down and put away.

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.

THE GREATEST COMPLIMENT

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 dysfunction in Washington, and continued trouble in Iran and the Middle East 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.

BAM MARKET WRAP EXTENDED
EDITION
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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.

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Contact Information

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Knoxville Office
Sam Bills - (865) 525-1329

Nashville Office
Bo Bills - (615) 371-5928

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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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