We are back at the S&P lows for 2018

As of this writing on Thursday morning, the SPY is trading at 259.23. The closing low for 2018 was at 257.63, less than 1% away.

Gold and bonds are up, so our portfolios are actually gaining today, While the S&P 500 is down 1.5% since yesterday’s close.

No changes to our asset allocations since March.


Sell on May 1st and Go Away?

Yuck. The financial markets look ugly today. All major asset classes are down, with stocks and gold leading the way lower. US Treasuries and TIPs are also down.

My blog entry from last week about paying the piper is still on my mind today. The longer we meander sideways without a convincing move back to January’s highs, the more pessimistic I will become.

Whatever the future holds, our asset allocation remains the same for now, having adjusted to the volatility increase in January.


So When (and how) Will We Pay the Piper?

US Government debt, at approximately $237 Trillion is estimated to have ballooned $20 Trillion in 2017. Unless the tax relief act leads to a tremendous jump in US productivity and GDP growth (and taxes paid into the US Treasury), the only option I see is devaluation of the US dollar. I don’t see the US ever admitting to the need to overtly default on our debt.

Roughly one in five conventional mortgages are owed by families paying 45% or more of their income on debt payments. This percentage of people paying this percentage of their income on debt is the highest it has been since just before the housing crisis in 2006-2007. It seems that we do not learn.

Subprime car loans have hit record highs in the last 12 months. The number of people delinquent 90 days or more on their car payments is at an all-time high.

The demographic wave of people retiring or being forced into much lower paying jobs is rolling toward us. These people are selling homes and downsizing. They are reducing their investment risks by reducing their stock investments.

Yet US stocks (the S&P 500) are just 7% or so below the all time highs they hit in January 2018.

When (and how) will we pay the piper?

I don’t know, but I’m glad our automated asset allocation methodology has reduced stocks, increased TIPs (Treasury Inflation Protected Securities) and increased Gold.



No Asset Allocation Changes this Week

Happy Monday everyone!

I just checked the Portfolio Wisdom model on our home page and see we’ve had no allocation changes since March 26, 2018. This is completely in keeping with our high efficiency, low drama approach to investing. Even that change was a minor adjustment of less than 1% in several allocations.

Today is a big up day for US stocks. It looks like the S&P-500 (up 1.64% at this writing) is trying to regain the ground it lost last Friday (down 2.3%). We’ll see. In the meantime, people who are not well diversified have to be getting sea-sick as the waves on the investing ocean get bigger and bigger.

Hope you have a great week!

Huge Day for US Stocks Yesterday

Wow. Just before the open, stocks gapped down more than 2% from the previous close. Then a 3% rally occurred with US stocks finishing the day up more than 1%. That type of action is often an indicator of an intermediate bottom in prices, as the last few weak hands get scared out of the market.

In the premarket hours today, stocks are indicating a positive open… up by over 1/2% from yesterday’s close. I would not be surprised to see US stocks stay strong for several weeks if we trade up today.

Of course, there is always the chance of some big political shock, given the propensities of our current administration and the misbehavior of the Russians, but that was quite a day yesterday.


Stock are Gaining About Half of Yesterday’s Losses

Volatility continues with US stocks up about 1% as of this writing after losing over 2% yesterday. We are back above March’s lows and about where we finished the month of March.

No real changes to our asset allocation. since mid-March.

It feels like the bull market in US stocks is finally ending, although it may be months before we know one way or the other.

We’ll just stick to our knitting. Portfolios are doing well, thanks to the allocation to Gold and TIPS.

Have a great week.

Sleazy Banks Paid Big Settlements (Quietly)

Barclays – $2 Billion

Goldman Sachs – $5.1 Billion

JP Morgan – $13 Billion

Bank of America – $16.65 Billion

That’s how much these banks paid out in fines and penalties for  misrepresenting the quality of the Mortgage-backed securities they sold leading up to the huge financial crisis that climaxed in 2008-2009.

I wonder how much money they actually made from those sales?

Stocks Look Weaker Today

As of this writing, the S&P500 is down more than 1% on a Monday after lots of political news over the weekend.

My last blog post articulated our current asset allocation percentages as of last Thursday. No changes today. Right now, our overall portfolio is flat on the day because of the other positions in our portfolios.

While the Nasdaq Managed to hit new highs recently, the other major stock indexes have not. Breadth in stocks is weak (ie. more stocks are going down than are going up), even though the popular big name stocks (Facebook, Amazon, Netflix, Google) have supported the major indexes.

Market tops have usually taken a long time to form … only becoming clear in retrospect. That is why many people say you can’t time the markets by getting out when you think the market is “high” or “over valued”. I don’t disagree with that belief, but I do believe that when stock market volatility begins to increase after a  long run up, your asset allocation to stocks should decrease according to the rise in volatility of stocks relative to the other asset classes.

Traditional asset allocation models are based on a couple of assumptions that we all know are not true:

  1. The monthly fluctuation (volatility) in stock returns follows a Normal Distribution statistically; and
  2. The future correlation of an asset class to other assets will correspond to the long-term historical correlation of that asset class to other assets (i.e. When stocks go down, bond values will go up).

Most of the time, these assumptions are very useful for the purposes of modeling market behavior. However, during periods of market crisis. The “rules” go out the window because human beings are making decisions based on something besides cold, hard logic and mathematical probabilities. When fear and greed take over, models fail… unless you have a methodology that reduces risk when markets are more risky.

That’s what we do.