I will only call them as I see them. I am not convinced that the major issues the country and the world are facing have all of a sudden disappeared. To be direct and brief, let me outline my thoughts.
- Oil production has not slowed. Iran will not comply with any cuts in production since they are just getting started, and the so-called OPEC "talks" has been a non-starter.
- The Federal Reserve has not backed away from raising rates and Janet Yellen's testimony continued on a path that suggests the Fed will stay the course.
- Wal-Mart (NYSE:WMT) confirms that the consumer is spending less, not more. Since consumer spending is roughly two-thirds of the GDP, it suggests a slowdown or even a recession.
- The dollar has NOT weakened and companies with large global footprints will see further erosion in revenues and profits from outside of the USA.
- A new development of a strange election year, to say the least, has further caused trepidation in both business growth as well as consumer confidence, and could cause corporate and personal spending to slow even further.
- If earnings and cash flow slows further, companies could target dividends to reduce overall spending.
- To me it looks like a survival of the fittest when it comes to dividends continuing being paid and increased. The best dividend aristocrats seem far less risky than just any other dividend paying company.
In the face of all of the above, the markets have bounced off of their 2016 lows and seem to have calmed down.
^SPX data by YCharts
Nearly a 100-point rise in the S&P 500 is significant in such a short period of time, but I can find absolutely nothing to sustain this rebound. I consider this a bear market rally and it could very well lull retirees into a false sense of security. I do not care what any other article might say, a retired person living on dividends and social security WILL run out of cash reserves at some point even if they stop spending the dividends and reinvest in all the dips.
In a market environment that continues to trend down, retirees will not be able to afford to continue buying forever, all the way down, especially if they have a portfolio filled with riskier higher yield equities such as BDCs or REITs. Portfolio value will erode, and if dividends are cut, there will be NO WAY to recover.
Yes, Having A Plan To Shift Gears Is Prudent
I am not advocating that any investor sell any stock or buy any stock. I DO advocate that smart investors have a plan to implement if and/or when they decide to become more defensive.
I tossed out my own defensive model portfolio simply to show my own thoughts. I prefer not having to do anything, but I am considering selling the following positions from TARP on further strength; General Motors (NYSE:GM), Ford (NYSE:F), PetMed Express (NASDAQ:PETS), HCP Inc. (NYSE:HCP), Annaly Capital (NYSE:NLY):
The total amount of income I will need to make up for the Team Alpha Retirement Portfolio will be about $2,450 per year. I anticipate receiving from $35,000 to $40,000 in cash to be redeployed into other stocks within TARP, but I would be kidding myself to believe that I could make up the $2,450 right away, I believe I can recover almost 3/4 of that decrease, or about $1,700.
As far as I am concerned, being retired means preservation of capital as much as continuing a reliable stream of income. If that means cutting back on outflow, then that will have to be done as well, until such time as I can move money around with a rising market to gain more of an income stream once again.
Let me say this as clearly as possible. I am NOT DOING ANYTHING YET, but I am ready to make these changes if the current major issues remain in front of my face.
I was in business for over 30 years, and whenever a company is faced with scenarios that affect sales and revenues, this is the exact process they use to STAY IN BUSINESS.
If an investor has an unlimited supply of money, a long-term time horizon, or is still working, the picture is much different for the better of course. If you are retired and have stopped receiving a paycheck, you MIGHT want to consider a more conservative portfolio or approach. That does not mean that anyone should sell anything out of fear and panic!
So What Am I Doing
Well, previously, I outlined a new portfolio that is on the back burner, and now I have identified the stocks that I will sell when I feel the time is right. I prefer selling into strength, not weakness, so I will most likely wait for another strong rally. If that rally does not show up, I will be doing absolutely nothing.
The Team Alpha Retirement Portfolio remains intact right now and until I make these moves, IF I do. At the very least, I have a plan for my "company."
What is YOUR plan for YOUR "company"?
Why "Follow" Me?
The main reason for a subscriber to "Follow" me, especially for the model portfolios (TARP or otherwise), is to glean some knowledge to become a better investor and not simply place bets.
Money management is every bit as important as any other aspect of investing, and by following a portfolio and the actions taken, you can gain some insight into a somewhat higher level of investing acumen. There are no requirements, and this is not "rocket science" - it is simply a powerful way for you to put the money you have worked hard for to work even harder for you.
My message will be consistent, and my hope by doing this is to share my own experiences, illustrated in the model portfolios I build exclusively for Seeking Alpha.
Knowledge is power, and many folks shy away from the investing world because that very world makes it more confusing each and every day in an effort to sell you something: stock picks, technical strategies, books, videos, subscriptions with "secret ideas," gadgets, and even snake oil.
My promise to you is that my work here will remain free to all of my followers, with the hope of giving to you some of the things that took years for me to learn myself. That being said, let me reach out to you with my usual ending:
**One final note: The only favor I ask is that you click the "Follow" button so I can grow my Seeking Alpha friendships. That is my personal blessing in doing this, and how I can offer my experiences to as many regular folks as possible, who might not otherwise receive it.
Plus, it is free (and will continue to be) and does not cost one penny for anyone who reads me.
Disclaimer: The opinions and the strategies of the author are not intended to ever be a recommendation to buy or sell a security. The strategy the author uses has worked for him and it is for you to decide if it could benefit your financial future. Please remember to do your own research and know your risk tolerance.
Disclosure: I am/we are long F, GM, HCP, NLY, PETS.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.