Monthly Market Review
January 17, 2013
1405 Medical Arts Building
324 W. Superior Street
Duluth, MN 55802
Kevin M. Wilson, ChFC, PhD
President/CEO/CIO
Dheenu Sivalingam, MBA
AVP/CCO/Senior Analyst
Office: 218-464-4399
Toll Free: 877-327-5062
Fax: 218-464-4397
Email: info@bluewater-cap.com
www.bluewatercapitaladvisors.com

1.
The public buys at the top & sells at the bottom
2.
Excesses in one direction lead to an opposite excess later
3.
Exponentially rising markets go further than you think…
4.
…But they do not correct by going sideways
5.
When all experts agree, something else will happen
-Bob Farrell
KEVIN M. WILSON
2

KEVIN M. WILSON
3

Deflation/Deleveraging and
Money Printing Dominate
4

We Are Still In A Secular
Bear Market, But There
Are Ways To Make Money
Fed Actions Boost P/E
Cheap
5

China’s Economy At A
Critical Turning Point –
Which Way Will It Go?
6

Is Gold In A Bubble?
When Will It Top Out?
$976 Billion
7

Food Prices Will Continue
To Rise, But Oil/Gas Depend
More On Global GDP
8

Timber/Lumber Prices
May Continue Upwards
If Housing Recovery
Strengthens
9

Economic Slowdown
Will Favor Bonds In
Short Term
ObamaCare Will
Lead To Changes
In Efficiency & Pricing
10

The Stock/Bond Correlation Is The Lowest Ever,
Making It Great To Own Bonds When Stocks Fall
(But Terrible When Stocks Rise)
11

Beware Reversion
Caveats On Certain Trends
ETFs Favored At High Correlations
12

KEVIN M. WILSON
13

S&P 500
Expected Returns Are Very Low, But
Uncertainty About Returns Is High
14

All Assets Seem Risky Now,
Possibly Forcing Changes In
Asset Allocation Approach
(e.g., “Risk Parity”)
15

Risk Parity Means Allocating Risks
Instead of Allocating Assets (Risk Is
Set Equal In Each Asset Class)
16

Recently This Situation Has Improved,
But Dividends Still Critical
17

DHEENU V. SIVALINGAM
18

Europe: Valuations Look Cheap
19

Higher Income From Dividends Than From Government Bonds
20

European Companies Are Proving Particularly Successful In
Acting As A Gateway To The World. (BMW, Nestle)
21

Japan’s The Wild Card
*) 2% inflation target and on top of that promises to spend 10.3 trillion of Yens on infrastructural and defense projects
*) Surging imports have caused Japan to fall into a trade deficit;
*) Japan will most likely try to devalue the Yen; short the yen.
22

1. EUROPEAN RECESSION WILL DEEPEN, BUT RECOVERY LATE IN YEAR
2. US WILL EXPERIENCE MILD RECESSION, THEN MUDDLE-THROUGH
3. BEAR MARKET WILL CAUSE PRICES TO DROP BY 32%-39%, THEN RALLY
4. QE3/QE4 PURCHASES WILL ACCELERATE TILL RECESSION RISK FADES
5. EM DEBT, EUROPEAN & JAPANESE STOCKS WILL OUTPERFORM
6. DEFLATION AND DELEVERAGING WILL CONTINUE AS THEMES
7. JAPAN’S EXPERIMENT WITH THE YEN & INFLATION FAILS
8. GOLD WILL FALL IN SHORT-TERM, RISE TO NEW HIGH IN LONG-TERM
9. OIL WILL STABILIZE AT $75 - $100/BBL. (ASSUMING NO WAR)
10. OBAMACARE TO BE IMPLEMENTED LATE OR WITH HUGE PROBLEMS
11. SAFE ASSETS CHANGING – CAUTION NEEDED W/TREASURIES, CASH;
BUT HIGH DIVIDEND STOCKS WILL REMAIN ATTRACTIVE
12. FOOD PRICES TO SOAR LATER IN YEAR DUE TO DROUGHT, ETC.
13. CHINA’S RECOVERY DELAYED OR TERMINATED Y FALLING TRADE
KEVIN M. WILSON
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KEVIN M. WILSON
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Cheap
DFV30
Expensive
ER
FV
Problem: Should We Risk Losing Money on Stocks If They Fall,
Or Risk Losing Money On Bonds If Yields Rise,
Or Maybe Continue To Lose Money on Cash Due To Fed Policy?
Extreme Situation
(Financial Repression)
Means Allocations
Will Need To Change
If Fed Continues With
Current Policies (Future
Returns Nearing Zero
For Most Assets)
Discount Factor Changes (dx/dt)
25

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.”