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Ugly Day to Start September 2018

Every asset class in our model allocation is down today. Not a good sign. It makes me grateful we are holding 35% in cash for our conservative portfolio allocation (on the home page of portfoliowisdom.com).

Increasing volatility is one danger sign for asset classes that have been rising for months or years. Another danger sign is the increase of correlation between different asset classes… when all asset classes move up or down together.

One term, “melt up” is used when all asset classes are rising together. This happens when “everyone” is fleeing cash and trying to add risk assets to their portfolio. This can happen after a market crash, when the smart money starts to buy in… OR, more often, this can happen as the last blow-off at the end of a long bull market when the very last buyers can’t fight their greed and jump in. When this happens, it can be good to raise some cash … take some profits off the table.

Another term, “crash”, is used when all asset classes are falling together. Today is like that. If this continues for the week, it could mean trouble. Thankfully, we raised 35% cash for our managed portfolio clients a month or so ago.

Time will tell, although September is historically bad for US stocks.


The Fed Blinks. Stocks at New Highs. Gold Rebounds

President Trump has been loudly complaining that he (and our economy) are “not getting any help” from the Fed because of the repeated rate hikes over the last year or so.

Today, in a speech, the Fed Chairman sounded very dovish and accommodating to the market mavens in his first big policy speech. Stocks have pushed through the previous all-time highs and are up nicely today. Gold and the miners are having a huge day. The US dollar is down.

For now, the bull market in US stocks continues. Gold and the miners may have bottomed for the year, based on the signals by the Fed.

Time will tell.

Have a great weekend.

Back to All-Time Highs Again

Today US Stocks continue pushing at the all-time highs of January. We might even break through today.

The US dollar has been weakening the last couple of trading days as President Trump loudly complains that the Fed is working against him by raising interest rates. This dollar drop has helped gold and the other asset classes to recover from the heavy sell-off last week. Our models have recovered all of last week’s dip and then some.

Will the trip back to the highs bring out the sellers, or will Trump’s rhetoric embolden stock buyers for another leg up?

Time will tell.


The S&P500 Tests All-time Highs from January 2018

Earlier this week the S&P500 closed within a gnat’s eyelash of the all-time highs of January 2018. Last time, that’s where the sellers showed up.

It will be interesting to see if the sellers show up again and whether the sellers or the buyer win. September and October are historically not good for stocks, but the tendency is not strong enough to bet your portfolio on.

We’ll be watching closely to see what happens.

Have a great weekend.


Portfolio Wisdom Allocation Change on 7/30/18

Our allocations don’t usually change more than once every couple of months. However during market regime changes, our allocations may change more frequently … and that is a very good thing.

Yesterday, our model called for a reduction in TIPs and an increase in U.S. stocks and cash. Accordingly, we moved to over 50% allocated to stocks and about 20% cash in the model. TIPs, Gold, and International (non U.S.) stocks are all trending downward at this time.


Bonds Trending UP Again.

What does that say about the markets and the economy?

Everything the Fed has communicated has had to do with raising interest rates . . . and it has raised rates several times.

Nevertheless, Treasury Inflation-Protected Securities (TIPs), as an asset class, are trending up again (over the last 6 months). Our asset allocation model adjusted holdings as of yesterday (Monday, July 16). Gold and International Stocks are also trending down, while US stocks, both large cap and small cap are trending up. Since we now have three asset classes in an uptrend, we are reducing cash to 5% of our portfolio allocation.


2018 is Half Gone

Hard to believe how fast this year is passing by. US Large cap stocks, Gold, Non-US stocks, and TIPS (Treasury Inflation-Protected Securities) are all trending down over the last six months or so. Small cap US stocks is the only asset class that is trending up for the first six months of the year.

Gold is down the most so far this year, of all five asset classes. It is bouncing today, but down about 4.8% YTD. The S&P is up 2% or so YTD.

You may ask “How are large cap US stocks trending down when we are up 2% on the year”? Well I’m glad you asked! I use the linear regression slope (a statistical way of determining the trend) of the weekly open, high, low, and close going back about six months. And, don’t forget, the S&P-500 was up 10% or so at the end of January. It has given back most of those gains since then, with a bumpy ride along the way.

So there you have it … a definitely “half empty” kind of mid-year report card.

Our economic fundamentals are starting to fade, and the tariffs on imports from China, Europe and elsewhere are making investors cautious.

We are holding 15% in cash and our biggest position is in the smaller US stocks.

Have a great 4th of July.


Wow, Gold was Really Hammered Last Friday!

A couple of weeks ago, my asset allocation methodology substantially reduced our allocation to gold (for our conservative and moderate clients) and I wrote about it on this blog. I was reluctant to do so, because I felt sure that gold was about to take off. However, I’ve learned to trust my process, and I reduced gold and added to small cap US stocks.

Well Small cap US stocks have increased 2.6% percent since the change, and gold has dropped. Thank goodness I stuck to my discipline!

And Friday, gold dropped another $23/ounce, ending the day at around $1278. / oz. Ouch. Thankfully, our portfolios benefitted both ways.

Given the last 10 years of US monetary policy and our debt, gold will rise again. . . But we’ll wait until our methodology calls for a larger gold allocation to do more than re-balance portfolios at the current allocation targets.