Kevin M. Wilson, ChFC, PhDPresident/CEO/CIO

Dheenu Sivalingam, MBAAVP/CCO/Senior Analyst

1405 Medical Arts Building324 W. Superior StreetDuluth, MN 55802

Office: 218-464-4399 Toll Free: 877-327-5062

Fax: 218-464-4397Email: info@bluewater-cap.com

www.bluewatercapitaladvisors.com

Monthly Market Review

“Ways to Win in 2013”January 17, 2013

 

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INTRODUCTION

KEVIN M. WILSON

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1. The public buys at the top & sells at the bottom2. Excesses in one direction lead to an opposite excess later3. Exponentially rising markets go further than you think…4. …But they do not correct by going sideways5. When all experts agree, something else will happen

-Bob Farrell

ECONOMIC MACRO-TRENDSWORTH INVESTING IN

KEVIN M. WILSON3

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Deflation/Deleveraging andMoney Printing Dominate

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We Are Still In A SecularBear Market, But There Are Ways To Make Money

Cheap

Fed Actions Boost P/E

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

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Is Gold In A Bubble? When Will It Top Out?

$976 Billion

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Food Prices Will ContinueTo Rise, But Oil/Gas Depend More On Global GDP

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Timber/Lumber PricesMay Continue Upwards If Housing Recovery Strengthens

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Economic SlowdownWill Favor Bonds In Short Term

ObamaCare Will Lead To ChangesIn Efficiency & Pricing

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The Stock/Bond Correlation Is The Lowest Ever, Making It Great To Own Bonds When Stocks Fall

(But Terrible When Stocks Rise)

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Caveats On Certain Trends

Beware Reversion

ETFs Favored At High Correlations

CAPITAL PRESERVATION UNDER EXTREME CONDITIONS

KEVIN M. WILSON

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S&P 500

Expected Returns Are Very Low, But Uncertainty About Returns Is High

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

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Risk Parity Means Allocating RisksInstead of Allocating Assets (Risk IsSet Equal In Each Asset Class)

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Recently This Situation Has Improved, But Dividends Still Critical

THE BEST MARKETS TO BE IN

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DHEENU V. SIVALINGAM

Europe: Valuations Look Cheap

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Higher Income From Dividends Than From Government Bonds

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

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*) Surging imports have caused Japan to fall into a trade deficit;

*) Japan will most likely try to devalue the Yen; short the yen.

*) 2% inflation target and on top of that promises to spend 10.3 trillion of Yens on infrastructural and defense projects

Japan’s The Wild Card

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A BAKER’S DOZEN: FORECAST SUMMARY FOR 2013/Q & A

1. EUROPEAN RECESSION WILL DEEPEN, BUT RECOVERY LATE IN YEAR2. US WILL EXPERIENCE MILD RECESSION, THEN MUDDLE-THROUGH3. BEAR MARKET WILL CAUSE PRICES TO DROP BY 32%-39%, THEN RALLY 4. QE3/QE4 PURCHASES WILL ACCELERATE TILL RECESSION RISK FADES5. EM DEBT, EUROPEAN & JAPANESE STOCKS WILL OUTPERFORM6. 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-TERM9. 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 ATTRACTIVE12. FOOD PRICES TO SOAR LATER IN YEAR DUE TO DROUGHT, ETC.13. CHINA’S RECOVERY DELAYED OR TERMINATED Y FALLING TRADE

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KEVIN M. WILSON

APPENDIX

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KEVIN M. WILSON

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Extreme Situation(Financial Repression) Means AllocationsWill Need To Change If Fed Continues WithCurrent Policies (FutureReturns Nearing Zero For Most Assets)

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?

(-2.5% Cash Return Line)

Discount Factor Changes (dx/dt)

DFV30ER

Cheap

Expensive

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.”

Disclaimer

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