Download November 2015 Update - Goodwin Securities, Inc.

November 2015 Update
Economic Update: Global economies are struggling and the US might be the best
with our recent 1.5% growth in the third Quarter. The poor Federal Reserve has
threatened us with higher rates for several years now and last September was the
“for real” date; but, they have backed off, again. This economy is driving them
mad: just enough growth to muddle along, but never enough speed to call for
raising rates. We are clearly in a stretch of very low growth, and quite frankly,
very low interest rates go along with that. And, more than likely, we will get very
low returns on many of our investments.
The Emerging Market economies are really struggling. Russia is being walloped by
low oil prices, Brazil is being hurt by falling commodity prices and awful
government, and China is still growing, but at a much reduced rate. The strong
US Dollar has also hurt all of these economies. And yet, we contrarians can smell
opportunity in this down turn!
I still see no clear signs of impending recession in our own economy-- Too much
caution and too little leverage, at least in the private sector. More slogging along.
Market Update: October was the best month in years with US stocks up about
8%. We talked last month about possibly being at a bottom in stocks with all the
pessimism and that looks to be the case. Both the Dow and the S&P are back
right beneath their old highs from May to July. Sadly, these declines are so quick
that taking advantage of the lower prices is difficult.
Per Morningstar, the overall market is pretty fairly valued. But that can mean
that stocks still have room to move higher, especially in an election year.
Mutual Funds and Asset Allocation: There has been quite a disconnect between
growth stocks and value stocks this year and the last several years. So Amcap is
ahead of Washington Mutual and Franklin Dynatech is ahead of Rising Dividends.
As good contrarians we want to be favoring the value funds over the growth
funds as these two will reverse returns in the next stretch. We want to still own
the kind of growth stocks in these funds (Google, Facebook, Amgen, Apple) but
the markets will eventually throw some love to the other funds that own stocks
like IBM, GM, Intel, GE, JNJ, and HP.
As mentioned above, the Emerging Markets have had quite a tough run over the
last three years, presenting a nice entry point for contrarian investors.
Unfortunately, I have been buying this area since last year and we have logged
some sizeable losses--in the mid-teens for most. But longer term, these markets
show tremendous promise as their middle classes grow rapidly and have
significantly more disposable income. My favorite funds here would be New
World Fund and Developing World Growth and Income Fund at American Funds
and Thornburg Developing World Fund.
Back to my earlier comments about lower returns: For 2015, bonds are up about
1%, munis a tad more than that and US stocks are up 3%. Pockets of strength are
growth stock funds up 6-8%. Biggest losers are Emerging Mkts, -10%, and gold
miners and commodity stocks.
For stock buyers, two old stalwarts look interesting from Morningstar: GM and
HP. The latter just split and many times splitting stocks do better once apart. GM
is righting its ship and might have 30-50% upside from $35.
This month marks 25 years of operation as Goodwin Securities with former
partners Gallagher, Luna and Browning. I am deeply grateful for them and all of
you for your many years of support. Also, many thanks to my current partner
Scott Schroeder and assistant Sarah Thomas. And lastly, a special thank you to
Dan Dooley at Maplewood Investment Advisors in Dallas who has been at my side
for this entire period.
John Goodwin