FIRST QUARTER 2011 UPDATE
APRIL 2011
Market Perspective
Contents:
Driving and the markets
1. Market Perspective Back in January I took my first trip
without my family. Sure, I have had
business trips without the family
2. Portfolio Approach
but since having kids I have yet to
take a short trip without my family.
3. Revisiting Strategy In the end of January I went to
Denver to visit with an old friend
and to do some skiing.
To miss traffic, we decided to drive
up to the mountains on a Sunday
evening. As we climbed through
the mountains on I70 heading west
traffic went from at speed to stop in
a blink. After about 15 minutes an
emergency vehicle came up the
shoulder of the road and let us
know that a Hazmat truck had
tipped over and hazardous material
was covering both east and west
Henry L. Becker, Jr., CFP® bound lanes. Fortunately, the exit
phone: 800.717.2527 for Georgetown, CO was right
mobile: 301.471.7911 where we were. With no other good
options we exited and found a nice
fax: 301.865.0072
little European restaurant to have
email: hbecker@etfgps.com dinner. After four hours the road
had still not opened and we decided
to look for a place to stay along with
many other displaced travelers. It
took some time, cajoling and almost
bribes but we found a dumpy motel
to spend the night.
The next morning the roads were
clear and we headed up to Beaver
Creek for two days on the slopes.
You must understand I am a huge
fan of skiing and love the
mountains. So, having a few days
skiing with friends in fantastic
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conditions left the weather at home
in Maryland in the back of my
mind.
As I sat in the airport waiting to
come home a wake up call came
from my wife. She asked if I had
seen the forecast for home. No,
why? She informed me that when
my flight arrived at BWI airport
during rush hour there was a
whopper of a snow storm coming at
the same time. That explained why
so many people were switching off
the flight. I decided to stay on the
flight and we agreed that she would
not try to come out and get me but
my father-in law would have the
unenviable task.
When my plane arrived there was
already a few inches on he ground
and it was dark outside. It was six
in the evening by the time we got
on the road. What should have
been a 45 minute drive to his house
became a four hour drive. Besides
treacherous roads there were plenty
of people on the roads adding to the
mayhem.
At this point you may be asking
how is this story important to
managing your portfolio. In the
course of my driving adventures I
kept thinking about how similar
driving is to managing money.
Case in point is upon my return to
Maryland I found snow falling so
fast you could watch it pile up. We
all know that winter driving can be
 FIRST QUARTER 2011 UPDATE
treacherous for more than one reason. Sure, you can
drive 50, 60, 70 miles an hour on snow covered roads
but the likelihood of wrecking goes up exponentially.
The point is when the roads are not safe a reasonable
person will slow down. This holds true for investing
as well. It is one thing to drive at speed on a nice
sunny day and quite another to drive at speed in poor
conditions.
Road conditions
It is one thing to be “all in” with your investments
when risks are low it is another to be “all in” when
risks are high. I would like nothing better than to
have bright sunny investing skies but that is just not
the case. Even though the talking heads might be
stating otherwise, remember, few of those in the
media saw the storm coming in 2008.
Right now market road conditions are more
treacherous than they have been in decades. Very few
people have a full appreciation of how close our
economy is to a possible derailment. Many folks
think that since the stock market has rebounded then
the economy is back on track. Nothing could be
further from the truth. The stark reality is private
sector financial companies ran themselves into the
ground leaving a massive hole for an ill-prepared,
debt laden government to fill in. The problem now is
the government (via the Fed) has taken on an
unfathomable amount of debt and printed an equally
unfathomable amount of money which jeopardizes
our economy and currency.
The affect of the Fed’s monetary intervention and
quantitative easing has been to force investors into
higher risk investments and out of low risk
Portfolio Approach
Nothing comes for free
There is no doubt we have witnessed a fantastic rally
in the markets since March 2009. The key is not to
mistake this rally for something other than what it is
and that is a debt-fuelled, bear market rally. What it
is not is a bull market rally. The difference is the
former happens amongst poor fundamentals and the
latter happens amongst solid fundamentals.
A good example of a bull market rally was from 1982
to 2000 where we saw the computers, the internet and
smart phones coming into the market.
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APRIL 2011
investments. If you think about it the Fed could not
push up housing prices but they knew they could
make us feel richer by inflating risky assets like
stocks. So, the market gains while nice have not
really come to us honestly and now stand on very
shaky ground.
So where are we know?
At the time of writing the US is about to breech
its debt ceiling of $14.2 trillion not including off
balance sheet wars and unfunded liabilities
Prices of food and energy are rising
Interest rates are as low as they can go with no
where to go but up which will increase the cost of
paying our nations massive debt
Unemployment is still high at 8.8% really much
higher when counting folks that have fallen of the
statistics radar
New home sales are at the lowest level recorded
Residential real estate prices fell the most in a
year over year figures since December 2009
Japan’s disaster(s) which are just starting to play
out in the global economy
Lastly, the boiling hot Middle East
So, I ask myself is this really the time to be stepping
on the gas or are the roads still too treacherous? I
think the later. We are at a point in the markets where
it is more prudent to drive cautiously and arrive alive
then speed up and risk an unnecessary accident.
We have a few more months of the Fed pumping
money into the markets so we are likely to see the
markets hold up but they may get more choppy the
closer we get to the possibility of the punch bowl
being taken away.
A good example of a bear market rally was from 2003
to 2007 where we saw phony profits spun by financial
engineers and a housing boom (thanks to artificially
low interest rates. There is a saying in the markets
that states we should “rent bear market rallies and own
bull market rallies.” The current rally has been built on
unbelievable monetary intervention and massive
amounts of government debt and the rental term may
be nearing its end
 FIRST QUARTER 2011 UPDATE
I will be the first to admit that for sometime I held out
hope that our government would see the errors in
their approach to getting the US economy back on
track. The last few weeks has, for the most part, sunk
my hope that this economy will have any meaningful
recovery. Besides the continued debasement of our
currency and the massive debt we now carry, my
hope has been dashed more by what is not being
done than by what is being done.
This government and the Fed have dragged the
economy to the brink of disaster. In the last few
weeks our fearless leaders have bickered over trying
to establish a budget but have only come up with
relatively meaningless proposed budget cuts. This
bickering over peanuts and ridiculous earmarks
shows a clear lack of understanding of the dire
straights of the economy. So, how do we plan for a
continuation of reckless decision by our government?
The first item to consider is possible outcomes for the
economy and how that will affect portfolios. For
answers to this we must look at history which points
to one of two paths. Historically, fait currencies
(currencies backed by nothing) never last. What
dooms fiat currencies, even in our own history, is the
reckless printing of money which leads to a currency
collapse. The other outcome could be for the
government to default on its debts. Keep in mind
that a default can range from renegotiating debts to
Revisiting Strategy
Assumes all
dividends are
reinvested. The
study is for
illustrative purposes
and not the result of
any particular
investment made by
Becker Advisory
Services.
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APRIL 2011
just inflating the debts away. Either path is possible
and both come with bad outcomes.
By nature I am not an alarmist. But, the trajectory we
are on with bailouts, money printing, supporting
zombie banks and a lack of conviction from our
leaders all points to an unpleasant outcome if history
is the guide.
Therefore, I am approaching markets at this point
with caution and looking to areas that can benefit
from a weaker dollar and inflationary pressures. In
the fourth quarter of 2010 I sold all direct bond
holdings and only now have bond exposure through
a floating rate bond fund that tends to do well in
inflationary, and rising rate environments. On the
equity side I have positioned to mining stocks,
agricultural stocks, energy stocks, US Industrials and
global dividend paying stocks. By looking to these
areas I avoid (for the most part) US banks, healthcare
and many consumer related names. I have
positioned portfolios with 8-15% positions in precious
metals and may increase that to 15-20% should the
economy get worse. The metals serve to protect the
portfolio from a declining dollar/inflation.
Ultimately, should the worst happen and we go into a
double dip recession and the market sells off, equities
for the most part will be sold should my sell side
triggers be met. In the article that follows I will
revisit my strategy on the sell side.
 FIRST QUARTER
INVESTOR 2011ISSUE
NEWSLETTER UPDATE

N°3
APRIL
FALL 2011
2008

In the last few weeks I have seen more articles and interviews about how
investors that held on through the downturn are turning out fine. The
financial media is underpinning their argument with the fact that the
markets are back to their pre 2008 level (for now). This kind of reporting
unnerves me for two reasons. First, it does not consider that there are
better, simple strategies with better results. Second, the current run in the
market is a Fed induced, debt-fuelled, phony, rally that will eventually
end with another large sell-off (then what).

So, I thought this might be a good time to revisit the heart of my

investment strategy. Remember that a sound investment strategy will
have both buy and sell points. In my investing decisions I consider both
both technical and fundamental aspects of the markets and individual
investments. But, at the very heart of my strategy is the goal of limiting
large losses. Most investors are fine with the day to day fluctuations in
the market and will tolerate 5-10% drops. What investors do not want to
see are 20%, 30% or 40% drops. Therefore, my strategy is designed to
limit exposure to the portfolio killer drops.

My strategy for equities is simple. If a holding is above its 200 day

exponential moving average (EMA) it is held. If a holding closes below
its 200 day EMA it is sold. The proceeds can go to another healthier
investment or sit on the sidelines. In today’s world everything is moving
together. Therefore, it is likely that the proceeds of a sale will sit on the
sidelines. A reentry point is when an investment is above its 200 day
EMA and the same investment’s 50 day EMA is above its 200 day EMA.
In the case of a steep drop, the reentry point is the crossing of the 50 day
EMA above the 200 day EMA this is known as the “Gold Cross.”

The moving averages are widely recognized (and used) as indicators of health of markets and securities. The
chart above and on the previous page show the results of implementing my strategy with the Vanguard Index
500 fund (VFINX). The study compares buying and holding from 1989 through the end of 2010 versus selling at
the 200 day EMA breech and reentering at a cross above the 200 day EMA or on a steep drop reentering at the
gold cross. The results speak for themselves.

Keep in mind there is no perfect investment strategy. If there were everyone would be a millionaire. As is
everything in life there are tradeoffs. The tradeoff with my strategy is that in an effort to manage risk and limit
the downside you have to give up some of the upside in some volatile years. The true power of the strategy lies
in outperforming in the periods that count the most - the bad periods. The bottom line is that this strategy is
proven, has outperformed over a relevant period of time (last 22 years), manages risk and has limited losses in
the really ugly years.

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 FIRST QUARTER 2011 UPDATE APRIL 2011

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Investing involves substantial risk. Becker Advisory Services (BAS) makes no guarantee or other promise as to
any results that may be obtained from their views.

No reader should make any investment decision without first consulting his or her own personal financial
advisor and conducting his or her own research and due diligence, including carefully reviewing the prospectus
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incomplete or unreliable, or result in any investment or other losses.

The information provided in the update is obtained from sources which BAS believes to be reliable. However,
BAS has not independently verified or otherwise investigated all such information. BAS does not guarantees the
accuracy or completeness of any such information. The commentary, analysis, opinions, advice and
recommendations represent the personal and subjective views of the BAS, and are subject to change at any time
without notice.

The update is not a solicitation or offer to buy or sell any securities.

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