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Apr 11th, 2013

WELCOME!


AGENDA WELCOME! ADMIN NOTESQUOTE OF THE DAYOPTIMISM GAUGECHARTS OF INTERESTSO WHAT’S UP WITH: TRADING SYSTEMS A CLOSER LOOK AT: LUV DAVID’S CORNERSWAPS AND SPREADSLEE’S COMMENTS QUESTIONS/COMMENTS


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“NOTES”


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QUOTE OF THE DAY:In investing – the winner is not the person with the

most “hits”…..

Doug Short

…it is the person with the fewest errors!


Optimism Gauge

As of: 4/11/2013

Indicator Current Value Prior/Metric Value Current Value

St Louis Fed Financial Stress Index -0.666 -0.646(Revised) +1.0

Chicago Fed National Act Index (3 Mon Mov Av) 0.09 0.28(Revised) -.50

Unemployment 7.7 7.9 (Revised) +.50

Weekly Jobless Claims (4Wk Mov Av) 358,000 355,000(Revised) -.50

ECRI Weekly Index 6.2 6.5 (Revised) +.50

Conf Board Leading Indicators (NEW) 94.1 93.9 +1.0

University of Michigan Sentiment - Final 78.6(Final – Mar 2013) 77.6(Final-Feb 2012) -.25

Monthly Retail Sales (Adjusted) 416,990 416,070 +.50

NFIB Small Business Sentiment 89.5 90.8 -.50

ISM Manufacturing 51.3(Expansion Line = 50) 54.2 +.50

Economic Capacity Utilization 79.1 79.3(Revised) +.50

Stock Market Moving Averages Weekly Data Points >50-day MA/>100-Day MA N/A

+.50

S&P Case-Shiller 20 City Comp Index 146.14 145.95 (Revised) +.50

Total +3.75Last Update: 4/11/2013

Measuring Our Economy

NOTES/COMMENTS

CURRENT READING: 67.7%

PRIOR READING: 67.7%

BIAS: MILDLY BULLISH

9 OF 13 INDICATORS POSITIVE

TREND - Neutral

EconomicOptimism

Index

15

25

35

45 65

75

85

95

67.7%

READING AS OF: 4/11/2013

POSITIVE AS OF: 8/17/2012

Current Reading Prior Reading

Measuring Our Economy


Charts of Interest!


Federal Reserve Slides

LATEST DATA ( REPORTED APR 2013) COMPARED TO PREVIOUS

Securities offered through Triad Advisors, member FINRA/SIPC. Advisory services offered through Lee Johnson Capital Management, LLC (LJCM). LJCM is an independent Registered Investment Advisor and is not affiliated with Triad Advisors.

Source: Federal Reserve

GDP FORECAST



UNEMPLOYMENT FORECAST



INFLATION FORECAST



FOMC PARTICIPANT ASSESSMENTS



Built By Advisors For AdvisorsSource: BLS

Maybe Not All Bad!

Looking at the long-term!

Current data

A CLOSER LOOK AT THE CURRENT EMPLOYMENT STATISTICS (CES)


LOOKING AT THE “RAW” DATA

Source: dShort

Built By Advisors For AdvisorsSource: dShort

S&P Inflation Adjusted!

“EVEN” with 1997

Built By Advisors For AdvisorsSource: FRED

How Low Can You Go?

Built By Advisors For AdvisorsSource: Calculated Risk

Gnawing Reality!

Built By Advisors For AdvisorsSource: Business Insider

Of Tulips and Bitcoins!


Aug 2012 = $10

If You Believe – Go Mining – Have Been $250 each!

Bitcoin Bounces Back After Crashing Nearly

60% - Closes at $200 (4/10/2013)


Your “Wallet”! Your “Money”!


AN ASSESSMENT Virtual Currency has a BAD SOUND First in win – last in lose Not really that liquid It will lose its “pure” purpose Like Bearer Bonds – Once gone they’re gone - Estimated 10% have been stolen NO stable exchange rate NO physical nexus THE GOVERNMENT WILL BE WATCHING

TULIPS ANYONE?


SO WHAT’S UP WITH:UNDERSTANDING A TRADING SYSTEM

THE PRICE IS FALLING!

Source: AAII

TRADING OR TRADING SYSTEM?

TIME IS YOUR FRIEND….IMPULSE IS YOUR ENEMY Jack Bogle

THE PRICE IS FALLING

1• INVESTING TRUISMS

2• THE BASICS

3• MARKET/STOCK DYANAMICS

4• INDUSTRY CONSIDERATIONS

5• FIRM SPECIFIC FACTORS

DISCUSSION TOPICS


1 INVESTING TRUISMS

TRUTH #1 – AT SOME POINT A STOCK’S PRICE WILL FALL

TRUTH #2 – DO NOT OVERREACT TO PRICE FLUCTUATIONS

TRUTH #3 – NEVER BECOME EMOTIONAL ABOUT A STOCK

TRUTH #4 – NEVER FALL IN LOVE WITH A COMPANY

THE PRICE IS FALLING• THE BASICS2

THE BASICS ARE ESSENTIAL ENTRY PRICE IS NOT ALWAYS AN EXIT FACTOR

ONCE YOU BUY A STOCK – “STAND ON YOUR HEAD”

COMPANY FUNDAMENTALS MATTER

FUTURE PROSPECTS ARE CRITICAL

DECISIONS MUST BE NON-EMOTIONAL

RECURRING THEMES ARE IMPORTANT

MARKETS HAVE IMPACT

INDUSTRY MATTERS

FIRM-SPECIFICS WARRANT CONCERN

PRICE PAID IS NOTA PRIME FACTOR IN SELLING

REASONS TO SELL AREREALLY THE SAME AS BUYINGCOMPANY FUNDAMENTALS

NEED TO BE REVIEWED OFTENALWAYS CONSIDER THE NEXT

STEP FOR A COMPANY REMEMBER THE “BUGGY WHIP”EMOTIONAL DECISIONS

ARE USUALLLY WRONGCOMPANIES FOLLOW PATTERNSKNOW THEM!MARKETS HAVE IMPACT BUT

DON’T AFFECT ALL STOCKS EQUALLY – KNOW THE DYNAMICSINDUSTRY MATTERS – SOME

SAY UP TO 50% OF A STOCK’SPRICE IS RELATED TO SECTORFIRM-SPECIFICS ARE CRITICAL-

THINK AIRLINES


3 MARKET DYNAMICS

TRADING ON MARKET WEAKNESS BY ITSELF NEVER A REASON TO SELLTAKE A LONGER-TERM PERSPECTIVE ON THE COMPANYKNOW THE STOCK VERSUS THE MARKETBE AWARE OF PRICE/VOLUME INCONSISTENCIESEXTREME VOLATILITY IS USUALLY A NEGATIVEHAVE AN EXIT STRATEGY


3 STOCK DYNAMICS

THE TECHNICALS CAN NOT BE IGNOREDOFTEN MORE OF A “TRADE” THAN A “POSITION”SHORTER HORIZONS IF NOT A TRADER – DON’T OVERREACTFUNDAMENTALS CAN “DRIVE” TECHNICALSTHEY CAN BE SUBJECTIVE IN A SENSE THEY ARE LAGGING INDICATORSWE ARE NOT TECHNICAL TRADERS


4 INDUSTRY CONSIDERATIONS

SECTOR/INDUSTRY FACTORSSTRUCTURAL CHANGES DO OCCUR SECULAR PATTERNS CAN BE TOUGHBE AWARE OF CYCLICAL TRENDSREGULATORY CHANGES MEAN THINGS INDUSTRY LIABILITY ISSUES GET EVERYBODYCOMPETITOR ANNOUNCEMENTS CAN MOVE STOCK PRICESFRANCHISE DAMAGE IS HARD TO OVERCOME PRICING POWER AFFECTS MARGINS


5 FIRM-SPECIFIC ISSUES

THINGS GO WRONG EXTRAORDINARY EVENTS

Natural Disasters Product Recalls Product Liability

EARNINGS REPORTS Don’t “Bet” on earnings Don’t Overreact – Listen/Read Bad Earnings Take a Quarter to Recover

MANAGEMENT ISSUESAUDITOR CHANGESBUY OR BUY/OUTPRICE CAN’T GO UP ANY FURTHER!?PRICE MOVING DOWN


CONCLUSIONSBIGGEST PROBLEM FACING INVESTORS: EMOTIONSCREEN MONTHLY CAN CATCH LAGGARDSSTOCK PICKING GETS MORE CRITICAL AS MARKETS MOVE UPTO BE SUCCESSFUL TRADING PLATFORMS MUST:

Be quantifiable Avoid interpretation Be consistent/repeatable Test expectancy Specify exact entry/exit points Have a reasonable level of complexity Be explainable Have disciplined users

STAY RATIONALE


A CLOSER LOOK AT: LUV


Enters Portfolio

Southwest Airlines Co. (LUV)Southwest Airlines Co. operates passenger airlines that provide scheduled air

transportation services in the United States. As of December 31, 2012, the company operated 694 aircraft, including 606 Boeing 737 aircraft and 88 Boeing 717 aircraft. It served 97 destinations in 41 states, the District of Columbia, and the Commonwealth of Puerto Rico, as well as 6 near-international countries, including Mexico, Jamaica, The Bahamas, Aruba, Dominican Republic, and Bermuda. It also sells frequent flyer points and/or credits and related services to business partners participating in the

Rapid Rewards frequent flyer program, including car rental agencies, hotels, restaurants, and retail locations. The company was founded in 1967 and is

headquartered in Dallas, Texas.

Source: FinViz.com, April 2013

Source: Morningstar, April 2013

POSITIVES: Preying on weaker competitors, Southwest has used the downturn to expand service offerings to Minneapolis-St. Paul, New York LaGuardia, and Boston Logan airports. If successful, these new markets will provide ample growth opportunities going forward.

Possible concerns: Airlines for America estimates that the tax percentage on airfare has tripled to roughly 20% of the price of a ticket today, up from 7% in 1972. Analysts don't expect the amount of taxation to decrease going forward, especially as the government contemplates ways to pay for increased security measures, so Southwest and the industry likely will receive a smaller share of future ticket proceeds.

Southwest Airlines Co. (LUV)


ENTERS PORTFOLIO 4/1/2013Buy 4/1/2013 $13.29


Trade Data

April 2013 Stock Picks

As of March 28, 2013 - Subject to change.

Industry:Airlines


Dow Transports

Looking for stability


Dow Airline Index

All airlines are not created equal


FINVIZ SUMMARY


VALUE LINE


DEUTSCHE BANK

Deutsche Bank upgraded Southwest Airlines Company from Hold to Buy and raised the

price target from $11.00 to $15.00.

Deutsche Bank noted, "We are raising our rating on Southwest shares from Hold to Buy as we now believe the company is well-positioned to meaningfully improve its pretax ROIC. We think the company has turned the corner on its AirTran acquisition

and should start to enjoy the fruits of various revenue (e.g. AirTran code sharing) and cost initiatives (e.g. growth of 737-800 inductions). Accompanying the P&L

improvement, we think there will be further debt pay-down and share buybacks. For the twelve months ended 9/30/12, Southwest's pretax ROIC was 7%."

RETURN ON INVESTED INCOMEAll Capital Invested: Long-Term

Debt; Common Stock; and Preferred Stock


STANDARD AND POORS


NED DAVIS RESEARCH


THE CHARTS PLEASE!


DAVID’S CORNER


SWAPS & “SPREADS”

IGNORE AT YOUR PERIL


SWAPS AND SPREADSRATE PRIOR CURRENT STATUS*

Libor/OIS 14.81 14.55

Euribor/Eonia .138 .133

DTCC RepoIndex

Agency .146 .209

MBS .155 .228Treas .138 .202

High Yield 4.87 4.87

Federal ReserveCurrency Swaps

(ECB)USD million

7 Day 300 505

Open 7,963 7,551

2-Year Swap Spread .17 .146 *Note: Status = No impact

Status = Negative Impact

As Of: 4/10/2013

CREDIT ANTICIPATES – EQUITY CONFIRMS


LEE’S COMMENTS


Source: Gartner Research

UNDERSTANDING EMOTION IN THE MARKET

PROCESS DESIGNED IN 1995 TO CYCLES IN THE TECH MARKET IDEA WAS TO EXPLAIN PRODUCT CYCLES AND DETERMINE IF A PARTICULAR TECHNOLOGY WAS “READY” SINCE THEN – APPLIED TO DIFFERENT INDUSTRIES COULD WELL BE APPLIED TO MARKETS GET’S TO THE HEART OF OVER-ENTHUSIASM POINTS TO PROCESS


Source: Gartner Research

UNDERSTANDING EMOTION IN THE MARKET


QUESTIONS & COMMENTS

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