Kevin M. Wilson, PhDChairman/CEO

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

“How to Play the New Asset Bubbles” (An Evaluation of Manias)

November 21, 2013 

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Ted A. Pavlovich, WMSPresident/Wealth Mgmt.

Advisor

INTRODUCTION

TED A. PAVLOVICH

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ANNOUNCEMENTS

KEVIN M. WILSON3

BLOWING BUBBLES: THE FED’S MYOPIA

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KEVIN M. WILSON

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The Nasdaq & Housing Bubbles Were Created by The Fed

Rates Too Low

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This Time We Hit The Zero Bound, So QE Was Used As Well

Zero Bound

QE (Bond Purchases) Expand Fed’s Balance Sheet

Fed’s Actions Affected Markets,But Had Little Impact on Economy

More Debt =Less GDP Growth

ActualResults

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Bubbles (2000,2007)

Somehow Not A Bubble (2013)

Fed Says We Can’t See Bubbles in Advance

NAVIGATING IN A BUBBLYSTOCK MARKET

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KEVIN M. WILSON

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Our Checklist For Calling The Top:

1) Stocks Dropping 20% Exceed Stocks Making 52-Week Highs (NO)2) Market Peaks Minimum of 8 Months After First Rate Increase (NO)3) IPOs Reach A Maximum On 3-Month Rolling Basis (NO)4) Price/Book Ratio Of Spec. Co.’s Much Higher Than For Div. Payers (NO)5) Share Turnover Rate On NYSE Is Above 75% Over 3-Months (NO)

Estimated S & P 500 Top May Be As High As 2325 (30% Higher) Or As Low As 1940 (8% Higher)

Speculative Bubbles All Have The Same Causes (Part 1):

1) Easy Money2) Explanatory Story3) Irrational Exuberance

Tulip Mania 1636

South Sea Land 1720

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Speculative Bubbles All Have The Same Causes (Part 2):

1) Easy Money2) Explanatory Story3) Irrational Exuberance

1929

Nikkei 1989, Nasdaq 2000, Shanghai 2007

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Bubble Psychology IsSomewhat Predictable

Log PeriodicBubble Function

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No One Rings A Bell AtThe Top, But You Can SeeIt Coming Far in Advance

Valuations Peaking?

Margin Debt Peaking?

Bear Market Syndrome Triggered

NAVIGATING IN A BUBBLY BOND MARKET

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TED A. PAVLOVICH

Bond Yields (Prices)Set By Three Things:1) Fed Funds Rates2) QE Bond Buying3) Inflation Risk

Rates Held Too Low For Too Long

InflationSubduedBut RealRates Rising

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End Of A 30-Yr. Bond Rally With All-Time Record High Prices (Low Yields)

Record Low Yield For 10-Yr.Of 1.38% Reached 7/25/12

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Interest Rates Have Not Acted As Predicted By The Fed

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Fed’s Taper of QE May Threaten Bond Market Stability

A Two-Percent Interest Rate IncreaseWill Double The Federal Debt Service

RESOLVING THE INVESTOR’S DILEMMA

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TED A. PAVLOVICH

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1) Costs Of QE And The Taper Caper

Our Solution Is To Limit Risk;In Fact, We Would Rather Lose Half Of Our Clients, Than Lose Half Of Our Clients’ Money

Tech Bubble’s Collapse Gave Back5 Years of Gains in Just 2 Years;However, A Model Allocated AccordingTo Risk/Reward Fluctuations Ended UpOutperforming By A Wide Margin

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SUMMARY

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KEVIN M. WILSON

1) We’re Probably In An Equity Bubble Phase2) The S & P 500 Top May Possibly Be 8-30% Higher3) Corrections (Perhaps > 15%)Will Occur Along The Way4) The Bond Bubble Has Burst Already, So Handle With Care5) All Of The Above Assumes No Major Surprises

Q & A

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KEVIN M. WILSONTED A. PAVLOVICH

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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