1. AVP/CCO/Senior Analyst
Monthly Market Review
“Looking Ahead to 2013”
December 13, 2012
Kevin M. Wilson, ChFC, PhD
President/CEO/CIO
Dheenu Sivalingam, MBA
AVP/CCO/Senior Analyst
Ted A. Pavlovich, WMS
VP Wealth Management
Office:
Toll Free:
Fax:
1405 Medical Arts Building
324 W. Superior Street
Duluth, MN 55802 1

2. Season’s greetings Ted a. pavlovich2

3. Jack be nimble… Kevin m. wilson3

4. US Deficit Will Shrink, But Debt Will Still Grow

5. Fed Will Continue To Monetize The Debt…
…And The Risk Of
An Inflation Spike
Will Increase Over
Time – But No Crisis
In 2013

6. Unemployment Issues
Will Continue To Slow
Down Spending…
…Many New Jobs
Are Part-Time

7. Commodity Cycle Will Stabilize After Recession Risk Fades
Oil stable
Nat. Gas stable
Food stable
Metals higher
Water higher
Timber higher

8. The Street Is Much Less Optimistic Than Last Year – So Where Are We?
LEI = Past Peak
Fed. = Mid-Recovery
Stocks = Mid-Recovery
Bonds = Recession
Balance Sheet Model/Demographics =
Extended Muddle-Through

9. Two Outcomes Possible A B

10. LT Market Returns Expected To Be Tame,
But ST Returns Will Fluctuate

11. Record High Profit Margins
Will Drop A Bit, Putting The
Stock Market Under Pressure

12. Pivot To Different Asset Allocations As Needed 1. EM Bonds
So Our Response Is
To Stay Nimble And
Pivot To Different Asset
Allocations As Needed
1. EM Bonds
2. Corp. Bonds
3. Gold
4. European Stocks
5. Resource Plays
6. EM Stocks

13. A stitch in time… Ted pavlovich13

14. Safe Assets Have Been Redefined By The Crisis

15. Treasury Yields Are
Dangerously Low,
Suggesting Change
Is Coming

16. Hedging Characteristics Of Gold May Be Changing
2012

17. In Spite Of Tax Increases,
Dividend Stocks Remain A Good Bet

18. Nothing Ventured… dheenu v. sivalingam18

19. *) Surging imports have caused Japan to fall into a trade deficit
*) Japan will most likely try to devalue the Yen, so short the yen.
*) Go long the Japanese
stock market if you are a
risk-taker 19

20. Continued QE program favors:
*) long physical gold
*) long bank stocks 20

21. Gold Miners Unbelievably Cheap, But This Is Not For The Faint of Heart
*) long gold miners

22. S&P Correlation to Euro currency tells us to be long S&P if Euro continues to go higher22

23. Emerging Market Stocks And Bonds Will Outperform
*) Go Long EM Debt

24. Forecast Summary For European Recession Will Deepen, but recovery late in year 2. US will experience mild recession/Muddle-Through 3. Fiscal Cliff Problem to be resolved, but uncertainty will remain about Income Taxes, Estate Taxes, Obamacare 4. QE3/QE4 will accelerate until Recession risk fades 5. Gold will fall in short-term, rise in long-term 6. oil will stabilize (Assuming no war) 7. Deflation and deleveraging will continue as themes 8. Safe Assets changing – caution needed w/treasuries, but high dividend stocks will remain attractive 9. unemployment will remain stubbornly high 10. Corp. profit margins will be lower than consensus 11. buy-and-hold strategies will again underperform 12. EM debt and european stocks will outperform 13. dollar trends will drive stock markets
KEVIN M. WILSON 24

25. Happy new year
KEVIN M. WILSON 25

26. Disclaimer
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.” 26