So Much for the Trade Truce Stock Bump!

Over the weekend, the news hit the press of the “Ceasefire” in the US – China trade war. Stocks opened up 2.5% or so yesterday morning. As of this writing, Tuesday afternoon, the stock markets have already given all of those gains back.

Now, we must wait to see if the lift from the Fed’s statements last week that we are “close to neutral” on interest rates is lost as well.

Three things are reassuring for our clients:

  • US Treasuries are rallying,
  • Gold is rallying, and
  • We are holding more than 50% cash.


The Fed Flips!

Yesterday Mr. Powell, the Fed leader, reversed his previous stance on the need to continue raising interest rates for a long time. Stocks, bonds, foreign currencies and precious metals soared on the news.

Our client portfolios did quite well, since all those asset classes appear in various client accounts.

Today gold is still going up along with bonds, while stocks are catching their breath. The more dovish the Fed gets, the more attractive gold gets, I believe.

Since gold and silver are at multi-decade inflation-adjusted lows and stocks are just 10% or so off all-time highs, it makes sense to over weight the former and underweight the latter. However, in our standard allocation, we do not anticipate the future. We simply allocate funds among the asset classes based on how they are behaving recently.

No action needed for now.


What Alan Greenspan said before he went over to The Dark Side!

Many thanks to Chuck Butler of The Daily Pfenning for sharing this Alan Greenspan quote from 1966.

“This is the shabby secret of the Welfare Statists’ tirades against Gold. Deficit Spending is simply a scheme for the confiscation of wealth… Gold stands in the way of this insidious process. It stands as a protector of property rights. If one can grasp this, one has no difficulty in understanding the statists’ antagonism toward the Gold Standard”… – Alan Greenspan from Gold & Economic Freedom 1966

Don’t kid yourself. The United States had a $100 Billion budget deficit (we spent more than we brought in) in October 2018, the first month of our new fiscal year. That deficit is GROWING EVERY MONTH, with no credible end in sight. Don’t forget the budget deficit projections do not include unfunded liabilities like Social Security and Medicare. Yikes!

Something has to give someday. When the debt destruction wildfire occurs (think California Camp Fire), it will likely happen suddenly and “burn up” savings held in cash and “safe” investments like bonds. The middle class and poor will probably suffer, but many of the wealthy will likely be burned as well.

Word to the wise!




Two Steps Forward, Three Steps Back

At least that’s what it looks like on Monday, 11/19 at 11:30 Central Time. We had a nice rally last Thursday and Friday. Things were looking better going into the weekend. This morning, however, we are down 1.75% on the S&P-500, giving back all the gains from that rally, and then some. Ouch. For 2018, the S&P-500 is up less than 1% at this writing.

You may have noticed that I don’t try to explain the daily or weekly stock market behavior. That’s because, in the short term, markets move pretty randomly. The explanations you see on the news are usually pretty bogus. On any given day, I can give you three reasons why the market is falling . . . or three reasons why it is rising. That doesn’t mean I really know exactly what caused the movement on any given day. Very few people do, and they are probably not talking.

By now, though, enough things have happened that you should see the value in our methodology raising cash over the last two months. Predicting the future is a pretty sure way to lose your shirt. BUT, reducing portfolio risk when market risk increases does pay off in the long run. . . and that is our goal.

We are well positioned. No need for any action at this time.


Stock Markets are Sliding

It looks like today (Thursday) the S&P-500 will open below where it started 2018. It was just a couple of months ago that “everyone” saw nothing but upside to the stock market and the real estate market … apparently too willing to forget 2006-2008, just 10 years ago.

I don’t know if this is the beginning of the big bear market or another scare. I have learned to stick to my methodology pretty closely and respond to what the market is doing right now, rather than try to predict the future.

We still hold over 50% of our non-speculative accounts in cash because of the increased risk. No need for any changes at this time.


Markets Are Taking a Breather Thursday

Yesterday the stock markets had a great day on the heels of the mid-term election results. Perhaps with the Republicans controlling the senate and the Democrats controlling the House of Representatives, the markets expect some stability (i.e. gridlock) for awhile.

Whatever the reason, we had a great rally yesterday, with all classes being at least slightly up for the day. Today, things are quiet without much movement either way as of 12:34 Central.

No portfolio changes for us.


Fourth Asset Class Enters Downtrend

As of Monday, November 5, 2018,  US Small Company Stocks entered a downtrend, joining Gold, International Stocks and US TIPs. Based on the methodology, this causes us to reduce risk by investing only 50% of our portfolios as shown below. Over to the right, you can see our new allocations along with the 2018 year to date performance of each asset class. The S&P-500, US Large Stocks, is the only asset class still in an uptrend.

Number of Asset Class Downtrends% Invested

You might wonder what happens when all five asset classes are trending down. Well, this rarely happens, and rarely lasts for long when it does occur, so we just ride this situation out. There is a big difference between managing risk and trying to time when to jump in and out of the market. We don’t advise jumping in and out and we don’t try it ourselves.

If you look at the asset allocation closely, you will see that we actually have more than 50% in cash. Hmmm, you may wonder, why is that? Well, if an asset class is trending up AND is fluctuating MORE now than it has in the last year, well, you guessed it, we reduce that position by 25% of the calculated value to manage risk even further until volatility decreases. The S&P-500 is doing that now.

The big picture looks very risky right now, so our model has us at almost maximum cash. If you are watching your own nest egg take a hit right now, you might want to check with your broker/representative about reducing risk.


Volatility is Back!

This week we saw a decent bounce in stocks on Wednesday and Thursday after a painful sell-off. However, today (Friday) we gave back most of yesterday’s gains.

Thankfully, we still hold a lot of cash (check out the allocation provided on our home page), and gold is holding its own also. There is no need for us to take any new action right now. We just need to wait for a new direction to emerge. As long as volatility remains high, we’ll continue to play defense.

Have a great weekend.

Ugly Start to Friday

Wow! After yesterday’s bounce, many people were beginning to feel better after Wednesday’s huge down day. But at this writing, 9:51 AM Central, the S&P-500 is down about 2.4% from yesterday’s close. This is well below where we closed the day on Wednesday.

Once again, the miners, the metals (gold and silver) and bonds are up, mitigating the losses from stocks. Also, thankfully, we went into this situation with 43% cash for our clients with balanced portfolios.

The speculative clients have much higher allocations to gold, silver and the miners, so those accounts are doing well today… creeping closer and closer to turning positive. This is starting to look like a Bona fide crash to me.

Please be careful out there. US stocks are now solidly negative for 2018.


Stocks are Falling Tuesday Morning

Well, I wrote last week that I expected US stocks to test the lows from October 11, 2018 last Friday. My timing was off. This morning, Tuesday, 10/23/18, the S&P-500 is down 1.5% just after the open. International stocks are worse. This “breaks” below the lows from 10/11 and if the “test” is passed, stocks will pop above those lows today and, perhaps, bounce up for a week or so. On the other hand, if this “test” level fails to hold, sentiment could get ugly and lead to a stock market crash. It will be interesting to see.

Lo and behold, gold, US treasuries and the miners are rallying strongly. People who got frustrated with their diversified portfolios and envied those who were “all in” on stocks should be feeling a lot better this month. We are barely above water for 2018 in US stocks right now.

Exciting times are ahead for the next few months, I believe.