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BAM MARKET WRAP

November 21, 2013
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STUFFED TURTLES, ELEGANT DINING AND DANGEROUS MARKETS

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WHERE WE HAVE BEEN

After a staid summer, the markets have been steadily rising over the last several weeks. In spite of a number of headwinds, the markets continue to grind upward. Should we throw caution to the wind? Will the markets continue on this upward trajectory? As regular readers know, we have been decidedly cautious for at least the last several weeks. We remain so. However, that doesn't mean that we will not participate in this rally - just that we will be cautious in doing so. Make no mistake, we are not predicting a significant correction but we do recognize that many of the pieces for such a correction are in place and, frankly, have been at various times throughout this year.

WHERE WE ARE HEADED

It turns out that more and more market "experts" are beginning to sound warning bells. Carl Icahn, the famed billionaire investor, said earlier this week, "I am very cautious on equities today. This market could easily have a big drop." He is not alone as a growing chorus of respected market technicians continue to warn that a big drop is becoming increasingly likely. What differs among many is exactly when such a drop will happen. Jeremy Grantham suggests this market could continue to drive higher over the coming months but warns that the markets are just setting themselves up for a catastrophic market collapse. Mr. Grantham correctly called the collapse in 2008 and started his defensiveness in 2007 - moving out too early in hindsight. However, he was rewarded for his caution by avoiding the calamities of the 2008 crash. Many market bulls criticized Grantham in 2007 and were caught unaware (and with significantly less money) in 2008. So what is the lesson in all of this? We want to capture as much upside as possible while remaining extremely vigilant in watching and waiting for what we believe to be a growing possibility of a significant move down. The dance music is still playing but we are moving closer and closer to the exit doors. Facts can and do change and we will continually adjust our thinking to respond to actual market conditions and the technical underpinnings that rest below the surface.

HOW WE ARE DOING

Our portfolios remain fully invested in a combination of equities and less volatile bond funds. While we have not captured as much of the upside as we would have hoped, we remain cautious keeping the goal of protecting client portfolios from significant loss at the foremost of our thinking. We try to invest when the odds are in our favor. Sometimes we are right and sometimes wrong. Despite the market's apparent strength, we continue to believe that the market risk level is above normal and the odds not completely in our favor.

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Tidbits
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START EARLY - To accumulate $500,000 in a pre-tax account by age 60, a 25-year old would need to invest $133 twice a month for 35 years. For an individual who begins investing at age 40, the required twice-monthly deposit increases to $451 for 20 years. All calculations assume a 6% rate of return and a 2.5% annual increase to the deposits. The numbers ignore the ultimate impact of taxes on the account and are for illustrative purposes only and are not intended to reflect any specific investment alternative (source: BAM Research).

BIGGER NUMBERS, SIMILAR RATIO - The cost of tuition, fees, room & board at an average private college for the current school year (2013-14) is $40,917, 2.2 times the $18,391 cost that a college student would pay this year at an average in-state public college. 30 years ago (i.e., the 1983-84 school year), the cost at an average private college ($7,759) was 2.3 times the cost at an average in-state public college ($3,433) (source: College Board).

BUYING POWER - Inflation has increased the level of prices in the USA +61.5% over the last 20 years, an annual increase of +2.43%. Thus, an individual retiring on 8/31/93 on a fixed-income (i.e., with no cost-of-living adjustment) would have 62% of the purchasing power as of 8/31/13 that he/she originally had (source: Department of Labor).

THE LAST MONTH - 20 of the last 23 Decembers have produced a positive total return for the S&P 500. The average December performance since 1990 is a gain of +2.0%, the best of any month (source: BAM Research).

SEVEN SCORE AND TEN YEARS AGO - US President Abraham Lincoln delivered the Gettysburg Address on 11/19/1863 or 150 years ago. The speech lasted just over 2 minutes and was given 4 � months after the Battle of Gettysburg (source: BAM Research).

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Sam and I took the opportunity to meet with a few clients a couple of weeks ago while I was in Knoxville visiting Carter. Little did I know that one of our clients was a world class taxidermist. Part of his house was a virtual exhibition hall of various and sundry animals that he had stuffed - turkeys, deer, boars, foxes, all manner of fish and, who knew that you could stuff a snapping turtle! It was an amazing display and made even more so by the fact that these were just a small collection of animals that he had hunted or fished. Sam also treated me to an elegant lunch with friends and clients at East Knoxville's finest Lunch House. While there were no cloth napkins, I did manage to enjoy some of the best banana pudding I have tasted.

I am always looking for excuses to come to Knoxville, visit Carter and maybe catch a Vols basketball game so please let us know if we can schedule a meeting with you.

With Thanksgiving a week away, we would like to express our sincere thanks to all of our clients and friends that read this newsletter and trust us with their financial assets. And may all of you have a wonderful turkey day with friends, family and all those you love.

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
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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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