Monthly Market Review
“What Happens When The Fed Changes Its Policy?”
(An Evaluation of Risk and Reward)
June 20, 2013
Kevin M. Wilson, ChFC, PhD
President/CEO/CIO
1405 Medical Arts Building
324 W. Superior Street
Duluth, MN 55802
Dheenu Sivalingam, MBA
AVP/CCO/Senior Analyst
Ted A. Pavlovich, WMS
VP Wealth Management
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Office: 218-464-4399
Toll Free: 877-327-5062
Fax: 218-464-4397
Email: info@bluewater-cap.com
www.bluewatercapitaladvisors.com
INTRODUCTION
TED A. PAVLOVICH
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THE FED HAS DRIVEN
HISTORICAL ASSET BUBBLES
AND THEIR COLLAPSES
TED A. PAVLOVICH
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Bubbles All Look Like
The Eiffel Tower
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Negative Real Rates (Imposed by Fed) Caused Bubbles
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Sequential Bubble-Blowing Punishes Investors
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Fed’s QE “Bubble” (Stocks/Bonds)
May Be Deflating Now
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TWO POSSIBLE SCENARIOS
FOR GLOBAL STOCKS
DHEENU V. SIVALINGAM
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Two Possible Scenarios For Global Stocks


MSCI Emerging Markets Index has tumbled
9.3 percent in 2013 after delivering 11 percent
annualized returns over the past 10 years.
BRIC nations-Brazil, Russia, India and
China-has sagged 11.7 percent following a
10-year track record of 13 percent gains.
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Bear Market Indicator Flashing Red in U.S.
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Currency War May Change Many Things
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Muddle-Through (Japanese) Scenario Is Also Possible
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Who Will Be The Winners?
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NAVIGATING THE END-PHASES
OF ASSET BUBBLES
KEVIN M. WILSON
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Bubbles Have Been Caused By Fed Setting
Effective Rates Too Low For Too Long
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QE’s Effectiveness Was Waning Anyway
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Strategic Normalization of Interest Rates Will Happen
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Notice That Stocks Can Rally As Yields Rise
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SOLVING THE PRUDENT
INVESTOR’S DILEMMA
Real Interest Rates-10 Yr.
KEVIN M. WILSON
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Interest Rates Have Been Very Low,
Hurting Retired/Conservative Investors
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But If Rates Start To Normalize,
Bonds Will Sell Off
Likely Rate?
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Solution: Move To
Higher Stock Allocations
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SUMMARY
1) Fed has blown up, and then popped, a whole series of bubbles
2) Global equities could rally once the adjustment to new rates has occurred,
or we could enter a “muddle-through” period
3) Previous episodes of interest rate normalization has sometimes been associated
with strong stock rallies
4) Prudent investors will soon see yields rise substantially, but must weather the
drop in bond prices that goes with that
5) The best solution is to significantly increase stock allocations over the long term
KEVIN M. WILSON
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Q&A
KEVIN M. WILSON
TED A. PAVLOVICH
DHEENU V. SIVALINGAM
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Disclaimer
This report is provided for informational purposes only and does not constitute an offer or solicitation to purchase or sell any
security or commodity and is not intended to provide specific advice or recommendations for any individual. To determine
which investment(s) may be appropriate for you, consult your financial advisor prior to investing. Any opinions expressed
herein are subject to change at any time without notice. Information has been obtained from sources believed to be reliable, for
its accuracy and interpretation are not guaranteed.
Investing in securities involves risk, including possible loss of principal. Past performance should not be taken as an indication
of guarantee of future performance and no representation, express or implied, is made regarding future performance.
The firm does not provide tax advice; clients should contact their attorney, accountant, or other tax adviser regarding tax
matters.
“BWCA is a state registered investment adviser in all states in which it is required to be registered. All Blue Water Capital
Advisors’ customer assets are held in the customer name with Fidelity Institutional Services, clearing through National
Financial Services (NFS), Member SIPC, a Fidelity Investments Company as Qualified Custodian.”
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