Minutes

AAII Orange County Chapter

Monthly Meeting, May 14, 2011

Balearic Community Center

1975 Balearic Dr.

Costa Mesa, CA  92626

President Bob Welge brought the meeting to order shortly after 9 am.
Beginning with preliminary announcements, Bob drew members’ attention to the
availability of Chapter contact information and handouts for today’s talk on
the side table, and of coffee at the back table. Bob acknowledged the efforts
of the Chapter’s leaders: Facilities Chair Craig Stoddard, Treasurer Dave McMillin; he also acknowledged Hospitality Chair Bill
Phillips, who was unable to attend due to illness.

Bob next announced the
schedule of future chapter meetings. The next meeting will be on Saturday June
4th (usual date and time), when Robert Trommler
will present Reverse Mortgages as an
Alternative Asset. There will be no meeting in July. On August 20th,
Benjamin Shepherd will present Implementing a
Low-Cost Investment Strategy Using ETFs. The schedule for the remainder of
the year features: on September 17th (special time 1pm), Matthew McCall will
present Building a Portfolio for the Next
Five Years; October, no meeting; on November 5th, Herb
Farrington will present Federal and State
Income Tax Law Update; and December, no meeting. Good job, Bob! Further details
on these future events and other Orange County Chapter information can be
viewed on Bob’s website http://www.robertsgeneral.com. His site has been
reworked, and now provides links to all old speakers back to 2002.

Bob then introduced today’s
speaker, Peter Miller, Statistics Director of Barron's, and his presentation Predicting Market Trends with Barron's. Anyone familiar with the Market
Watch pullout section in Barrons or the
online and freely-available Market Data Center knows they contain a
bewilderingly huge amount of numerical stock market and economic data, and who
better to interpret and highlight the value of it all than Mr. Miller – the man
who selects, collects and curates it all?

Peter first ticked off and
provided thumbnail descriptions of the various indexes and data ‘departments’
published each week. These include Market Laboratory, Trading Diary, ARMS
Index, Sector Analysis, Bonds (including the Confidence Index), Money Rates,
Pulse of the Economy, and Dividends. Of these, he received the most complaints
when he tried to delete dividend payment dates – do investors care when they’re
going to receive income or what!

Peter pointed out that the
value of the Dow Theory lies in its ability to relate the level of industrial
production with that of distribution (i.e. transportation) – both have to be
increasing to assure a rising market. However, it is important to pay attention
to many indicators when they disagree with one another.

Watching the relationship
between the market’s 200 day moving average (MA) and the 50 day is valuable;
when the 50 day MA is >10% higher than the 200 day MA, a correction often
follows.

Peter next discussed some
ideas concerning bonds. He has noticed that a recession has followed all eight
times since 1935 when the (bond) yield curve has become inverted (long bond
yields lower than short term yields); upon observing this in 2008, he went to
cash and avoided the market crash. He believes that 7-year notes, typically at
the steepest part of the yield curve, carry the least risk due to either credit
(default) or inflation. Finally he defined TED spread as the ratio of the 3-mo
LIBOR rate to the 3-mo T-Bill rate; this is a measure of inter-bank credit risk
and is normally <0.1%.

The Pulse of the Economy
section contains a number of useful statistics, including Electric Power
Consumption, Housing, and Commercial Real Estate. With respect to Employment,
Peter claims that this is NOT a lagging indicator as is widely believed.

Returning to market
indicators, he mentioned Breadth and the 4-week MA of the ARMS Index as being
valuable, along with the daily volume of the 15 most active stocks. He asserts
that when there are fewer 52-week lows in a declining market, the market is
bottoming; conversely, when the VIX (CBOE Volatility Index) is low, then the
market is on the verge of a decline.

Investor Sentiment was another statistic Peter discussed. This is the
ratio of insider sells/buys, for which a value over 30 is bad, i.e.,
suggests the market will decline. A seemingly related index, AAII’s own
Sentiment Indicator should actually be used as a contrary
indicator (i.e., when more of those of us who share our views believe the
market will rise, Peter suggests it is more apt to fall.).

Peter opined: “Stocks lead
the news, and bonds lead the market.”
Thus relationships among bond yields may provide clues to market
direction, as exemplified by Barrons
Confidence Index.

Peter observed that in this economic cycle,
[mortgage] defaults came first, then unemployment, creating a ‘catch-22 economy;’
until these two can be normalized, the economy can’t recover.

Finally Peter shared some
views of two members of the panel of experts Barrons
convenes twice a year: Oscar Schafer and Felix Zulauf.
They believe gold may go to $2500/oz (from ~$1500), while the Euro may
disappear within 10 years.

Peter encourages interaction
with readers and AAII members via email at [email-masked]. Much of
the data appearing in Barrons are available as Bonus
Tables that reach back as far as 1890 and may be obtained by contacting Mr.
Miller.

Following the conclusion of
Mr. Miller’s presentation, President Bob Welge
adjourned the meeting at 11 am. As a bonus, interested members were invited to
continue discussion with Mr. Miller over lunch.

_____________________________

Minutes
recorded by: Ed Sharman