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BAM MARKET WRAP

May 8, 2014
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THE SKY IS FALLING!

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WHERE WE HAVE BEEN

There continue to be troubling undercurrents in the markets. While the Dow and S&P are near all time highs, the more aggressive NASDAQ and Russell 2000 struggle. Over the last two months, the Dow and S&P are flat to up 1%. However, over the same period the NASDAQ and Russell are down 7-8%. A healthy market has all major indices moving in the same direction. Additionally, one would like to see the aggressive indices leading the charge higher as that would indicate investors have an appetite for risk. As it stands, there remains a investor squeamishness below the surface. The divergence in the indices will not last long and either the S&P and Dow will pull the lagging indices up or the NASDAQ and Russell will pull the others down with them. For the year, the S&P and Dow are little changed while the NASDAQ and Russell are down 3-5%. A cursory look at the leading sectors for the year illustrate that risk is not in favor as real estate, utilities, precious metals and health (all defensive sectors) lead in market returns.

WHERE WE ARE HEADED

Much is made of the seasonal weakness present from May until the end of the summer. While not always true, there are statistical significances to the mantra "sell in May and go away." This year it may prove more true than usual for a number of reasons. In addition to the divergence noted above, there is also the (oft repeated here) lack of any significant correction in over 2 years, the sputtering recovery, and rising tensions in a number of world hot spots. Any surprises would send an already wary market into sell mode and would set the stage for a correction of some magnitude. As mentioned here a number of times, a correction would be very healthy for the market and would serve to reset some frothy valuations and would allow a needed dose of reality to market participants that only think the market goes up. It remains a matter of when and not if and with the roads continuing to diverge, the likelihood that the time is approaching increases daily. Caution remains a prudent course but we will wait for prices to follow our concerns before heading for the exit.

HOW WE ARE DOING

While we remain fully invested in our Fidelity and TD Ameritrade portfolios, we have shifted some of our investments to lessen our exposure to equities and move to other less volatile areas of the market that are enjoying excellent risk adjusted returns. Our portfolios have largely kept pace with the Dow and S&P with much less day to day volatility. While we continue to expect a sell-off in equities, we will continue to seek out those areas of the market with good risk/return profiles. There are times to add risk to a portfolio and times to reduce risk - we believe we are in a period where risk management is good and prudent.

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Tidbits
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BULL TIME - The S&P 500 bull market that began on 3/09/09 has lasted 62 months as of this Friday (5/09/14). The average bull market for the stock index since 1950 has lasted 58 months (source: BAM Research).

MORE RENTERS, FEWER OWNERS - 64.8% of US families are homeowners as of 3/31/14, the lowest percentage in the country since 1995 (source: Census Bureau).

MORE AND MORE - Health care spending by the federal government represented 2.1% of federal spending in 1962, but has risen to 27.7% of spending by 2013 (source: Brookings Institution).

THE BIGGEST - The US economy grew by just +0.1% in the 1st quarter 2014 (i.e., quarter-over-quarter change expressed as an annualized number), the slowest quarterly growth in America since the 4th quarter of 2012. At $15.9 trillion in size, the US economy is the largest in the world. The US overtook the British economy as the global leader in 1872 and has held that title for the last 142 years (source: Commerce Department).

LOOKING FOR WORK - There are 3.45 million Americans that have been out of work for at least 27 weeks (as of 4/30/14), equal to 35.4% of all jobless Americans. That number is double the pre-recession level of 16.0% from October 2006 but below the peak level of 45.6% from June 2010. For workers without a job for more than 6 months between 2008 and 2012, only 36% were working a year later (source: Department of Labor, Alan

Krueger).

DROPOUT - More than 2 of every 5 college students (41%) that begin college with the intention of achieving a bachelor's degree fail to do so within 6 years of entering college (source: National Center for Education Statistics).

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It has been an interesting and exciting start to the summer for the NashBills. With two in college for the last 9 months, Kelly, Sarah and I had become accustomed to quiet nights and early bed times. That bubble was burst last Friday as both Emily and Carter moved back home for the summer. Emily had major knee surgery last Friday (the same day Carter moved home) and will be home on crutches for the next 6-8 weeks. Over the last several days we have had a revolving door of activity; we have had boyfriends, girlfriends, school friends, visitors, etc. Additionally, it would appear that our college kids have developed a penchant for post midnight activities. Don't get me wrong, it has been great to have everyone home and the laughter and constant activity have brought many smiles to Kelly and me. Even as I write this I hear a cacophony of activity downstairs as Emily has two friends over visiting and on the other side of the upstairs, I hear Carter and three friends laughing and playing xbox. Life is good and it is great to have a full household.

Sam spent the last few days in South Florida for a conference. It was the annual NAAIM conference that we almost always attend (I could not go this year due to Emily's surgery). From all accounts, Sam returned with lots of new ideas to better our investment management. We will relay those thoughts over the coming weeks.

We hope your summer is off to a quiet (or at least a very enjoyable!) start. As always, we remain available to discuss any questions you have about our investment management or your specific accounts.

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.

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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
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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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