FBIAS™ for the week ending 10/10/2014

FBIAS™ Fact Based Investment Allocation Strategies for the week ending 10/10/2014

The very big picture:

In the “decades” timeframe, we have been in a Secular Bear Market which began in 2000 when the P/E ratio (using Shiller’s Cyclically-Adjusted P/E, or “CAPE”) peaked at about 44.  The job of Secular Bear markets is to burn off outrageously high P/E ratios over one or two decades, until finally the P/E ratio arrives back at a single-digit level, from which another Secular Bull Market can emerge.  See graph below  for the 100-year view of this repeating process.

If history is a guide, we may not yet be done with this Secular Bear Market.  The Shiller P/E is at 25.0, down from the prior week’s 26.1, and approximately at the level reached at the pre-crash high in October, 2007.  Even though P/E’s are substantially lower than their crazy peak in 2000, they are nonetheless at the high end of the normal historical range and leave little if any room for expansion.  This means that the stock market is unlikely to make gains greater than corporate profit growth percentage, if that.  (note: all P/E references are to the Shiller P/E values, sometimes called PE10 or CAPE, which are calculated so as to remove shorter-term fluctuations; see robertshiller.com for details).

In fact, since 1881, the average annual returns for all ten year periods that began with a CAPE at this level have been just 3%/yr (see graph below).

This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold.  Although a mania could come along and cause P/E’s to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns typical of a Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate.  The US Bull-Bear Indicator (see graph below) is at 55.1, down from the prior week’s 58.8, and continues in cyclical Bull territory.  The current Cyclical Bull has taken the US and some of Europe to new all-time highs, but many of the world’s major indices have yet to top 2007’s levels.  The most widely followed international indexes, the Morgan Stanley EAFE Developed International index and the Morgan Stanley Emerging Markets Index, are both still below their 2007 peaks.

In the intermediate picture:

The intermediate (weeks to months) indicator (see graph below) ended the week at 7, down sharply by 9 from the prior week’s 16, and in Negative status.  Separately, the quarter-by-quarter indicator – based on domestic and international stock trend status at the start of each quarter – gave a positive indication on the first day of October for the prospects for the fourth quarter of 2014.

Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2 above), the Secular Bear may still be in force as the long-term valuation of the market is simply too high to sustain a new rip-roaring Secular Bull.  In the Cyclical (months to years) timeframe (Fig. 3 above), all major equity markets are in Cyclical Bull territory.  The Bond market returned to Cyclical Bull territory as of February 28th.  In the Intermediate (weeks to months) timeframe (Fig. 4 above), US equity markets moved to Negative status on October 1st.  The quarter-by-quarter indicator gave a positive signal for the 4th quarter:  US equities were in an uptrend, while International equities were in a downtrend at the start of Q4, and either one being in an uptrend is sufficient to signal a higher likelihood of an up quarter than a down quarter. 

In the markets:

The week ending October 10th was the worst week of the year for the US and many other markets.  The Dow lost  -2.7% (and is now negative for the year), the S&P 500 dropped -3.1%, but the other US indices were substantially worse with the Nasdaq and SmallCap Indices shedding -4.5% and -4.7% respectively.  To call the week’s action whippy would be an understatement: Wednesday saw the year’s best one-day gain for the Dow, but then Thursday endured the year’s worst one-day Dow loss.

Canada’s TSX lost -3.8% for the week, and joined the Russell 2000 SmallCap index in having lost ground for 6 weeks in a row.  International indices outside of Europe were less drastic in their losses, perhaps because they have already shed quite a bit more than the US.  Brazil, for example, gained +3.2% for the week, but is already down -22.2% from its highs of the year.  Developed International has shed -12.8% from its highs, and Emerging International -11.6%.  Among US indices, only the Russell 2000 is down double-digits from its early-year highs, at   -12.9%.  Canada’s TSX is not quite to a double-digit decline, either, at -9.1% from this year’s high.  After the dust settled for the week, calmer voices pointed out that the bellwether S&P 500 is still only down -5% from its all-time highs of just a few weeks ago.

In the US, earnings season is in full swing with no major surprises yet save for some negative outlooks from semiconductor companies, with one – Microchip Technology – forecasting a general semiconductor industry slump.  The giant rally on Wednesday was sparked by the Fed minutes revealing that sluggish (or no) global growth has entered into the calculus of the Fed – a new consideration, not heretofore articulated in Fed statements.  Since global growth is at best sluggish, investors took that to mean that low/no global growth will further postpone Fed tightening, and bought furiously…for one whole day.  The 10-year note soared as rates dropped to 2.3%, their lowest level in more than a year.  Unlike the stock rally, the 10-year rally was not reversed and closed the week at their highs.  In other US economic news, initial jobless claims dropped to 287,000 and the 4-week average is now at the lowest level since 2006.  Mortgage rates hit a 4-week low, and refinance applications rose 5% from the prior week.

Canada’s jobless rate fell to 6.8% in September, from 7.0% in August.  74,000 new jobs were added, almost all full-time positions.  The Bank of Canada’s governor Stephen Poloz, however, focused on the lack of a rise in the number of hours worked, which has remained stagnant, saying “An economy that’s actually growing in a self-sustaining way is going to generate quite a bit more draw on the labor market than that.  When you start talking about slack, it’s going to take a substantial, cumulative series of good reports to begin to put a dent in that.”  Canada has evidently had enough with the US’ waffling and endless delays of the XL pipeline project, so the government has recently unveiled the “Energy East” project, which will transport oil all the way from Alberta and Saskatchewan to St. John, New Brunswick, for subsequent export to Europe and points east.  If they can’t take it to the Gulf of Mexico through the US, Canadians are determined that their oil will still find its way to the global market.

Europe continues to worsen as the probabilities of yet another recession continue to rise. September Purchasing Managers Index (“PMI”) data on Eurozone retail sales showed the sharpest fall in 17 months at 44.8, with Germany at 47.1 (a 53-month low) and France at 41.8 (a 18-month low).  Values below 50 indicate contraction.  Phil Smith, economist at Markit (publisher of PMI values), commented “Consumer spending in the euro area looks to be on the downturn, with the latest retail PMI figures showing sales falling for the third month running.”  For the first time since January 2009, Germany reported worse figures than its Eurozone compatriots.  Factory orders fell -5.7% in the month, industrial production was down -4%, and exports declined -5.8%.  France teeters on the brink of recession, or perhaps is already back in recession, yet has not done anything substantive to get its fiscal house in order.  Public spending takes up 57% of France’s GDP – by far the highest in the Eurozone – and France hasn’t had a balanced budget in 40 years.

So, is there anything going up these days?  One area of continued rapid appreciation is…American farmland, especially as expressed in multiples of rental charges.  Here’s an amazing chart showing the unabated rise in farmland values in America’s heartland:

(sources: Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, wantchinatimes.com, BBC, 361capital.com, S China Morning Post)

The ranking relationship (shown in graph below) between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market.

The average ranking of Defensive SHUT sectors rose to 5.8 from the prior week’s 8, while the average ranking of Offensive DIME sectors fell to 17.3 from the prior week’s 16.3.  Institutional investors remain cautious, and the Defensive SHUT group ranks higher than the Offensive DIME group ranking by the widest margin in more than a year.                                                                                                                                                                                                                          

Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks.

Summary:

The US has led the worldwide recovery, and continues to be among the strongest of global markets.  However, the over-arching Secular Bear Market may remain in place even as new highs are reached in the US.

Because we may still be in a Secular Bear, we have no expectations of runs of multiple double-digit consecutive years, and we expect poor market conditions to be a frequent occurrence.  Nonetheless, we remain completely open to any eventuality that the market brings, and our strategies, tactics and tools will help us to successfully navigate whatever happens.

If you have any questions about the FBIAS™ Fact-Based Investment Allocation Strategy portfolios, feel free to give your Anthony Capital, LLC advisor a call at 303-734-7178 or by scheduling a private virtual meeting/conference call.  We work with clients from all over the country and would be happy to help.

You can also open up an online account by clicking HERE at our preferred custodian, Folio Institutional.

Sincerely,

Dave Anthony, CFP®, RMA®

FBIAS™ for the week ending 3/21/2014

FBIAS™ Fact-Based Investment Allocation Strategies for the week ending 3/21/2014

The very big picture:

In the “decades” timeframe, we are in a Secular Bear Market which began in 2000 when the P/E ratio (using Shiller’s Cyclically-Adjusted P/E, or “CAPE”) peaked at about 44.  The job of Secular Bear markets is to burn off outrageously high P/E ratios over one or two decades, until finally the P/E ratio arrives back at a single-digit level, from which another Secular Bull Market can emerge.  See graph below for the 100-year view of this repeating process.

If history is a guide, we may not yet be done with this Secular Bear Market.  The Shiller P/E finished the week at 25.7, up slightly from the prior week’s 25.5, and approximately at the level reached at the pre-crash high in October, 2007.  Even though P/E’s are substantially lower than their crazy peak in 2000, they are nonetheless at the high end of the normal historical range and leave little if any room for expansion.  This means that the stock market is unlikely to make gains greater than corporate profit growth percentage, if that.  (note: all P/E references are to the Shiller P/E values, sometimes called PE10 or CAPE, which are calculated so as to remove shorter-term fluctuations; see robertshiller.com for details).

In fact, since 1881, the average annual returns for all ten year periods that began with a CAPE at this level have been just 3%/yr (see graph below).

This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold.  Although a mania could come along and cause P/E’s to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns typical of a Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate.  The US Bull-Bear Indicator (see graph below) is at 68.8, down slightly from last week’s 69.1, and still solidly in cyclical Bull territory.  For the last three years, the US Bull-Bear Indicator has pushed further into Bull territory than other global asset classes, reflecting the higher strength of the US relative to the rest of the world.  The current Cyclical Bull has taken the US to new all-time highs, exceeding the highs of 2007, but most of the world’s major indices have barely matched 2011’s highs, let alone approached 2007’s levels.

In the intermediate picture:

The intermediate (weeks to months) indicator (see graph below) remains in positive status, ending the week at 26, down from the prior week’s 27.  Separately, the quarter-by-quarter indicator – based on domestic and international stock trend status at the start of each quarter – gave a positive indication on the first day of January for the prospects for the first quarter of 2014.

Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2 above), the Secular Bear still is in force as the long-term valuation of the market is too high to sustain a new rip-roaring Secular Bull.  In the Cyclical (months to years) timeframe (Fig. 3 above), all major equity markets are in Cyclical Bull territory, with the US being far stronger than any other major market.  The Bond market returned to Cyclical Bull territory as of February 28th.  In the Intermediate (weeks to months) timeframe (Fig. 4 above), US equity markets remain in positive status.  The quarter-by-quarter indicator gave a positive signal for the 1st quarter:  both US and International equities were in uptrends at the start of Q1, which signals a higher likelihood of an up quarter than a down quarter. 

In the markets:

The year-to-date laggards played catch-up and were the leaders for the week.  In the US, the Dow Industrials gained +1.5% to lead all US indices, while the beaten-down Emerging International group gained +1.5% on average, far outstripping Developed International, which was just barely positive for the week.  Brazil, also among negative year-to-date performers, led all major country markets for the week by gaining +6.5%.  The high-flying Nasdaq was hit hard at the end of the week when a number of previously-hot biotechs were sold off aggressively.  Conversely, the previous poor-performing Financials sector got red-hot following the Fed’s release of so-called “Stress Test” results: 29 of 30 major banks met or exceeded the capital required to withstand a near depression.  Canada’s TSX Composite Index gained +0.8% for the week.

In the US, economic news was mostly positive.  Some might say “too positive”, as it may have given rise to Janet Yellen’s off-the-cuff guesstimate that rate tightening could occur as early as “…on the order of around six months or that type of thing.”, which temporarily spooked markets.  U.S. factory output rose +0.8% in February, the biggest gain since August, energy prices fell for the first time in 3 months, building permits jumped +7.7%, the Consumer Price Index (“CPI”) rose just +0.1% in February, in line with expectations, and is up just +1.1% year-over-year.  The Philly Fed survey came in at a robust 9 vs. expectations of just 3.2, although the Empire State manufacturing survey missed its expectations.

Canadian central bankers heaved a sigh of relief as consumer prices were reported to have risen +1.1%, higher than expectations and within the central bank’s target range of +1% to +3% – and easing deflationary fears at least temporarily.  Canadian aircraft manufacturer Bombardier looks to be a victim of collateral damage from the sanctions imposed by the West on Russia over its annexation of Crimea.  The company had been relying on Russian deals worth between $3 and $4 billion over the next few years, but the orders are now in jeopardy as more and more financial sanctions are put in place.  Bombardier’s stock is down -9.5% year-to-date, compared to a higher Canadian market overall.

Although most of Europe has been fixated on the potential of higher energy costs of imports from Russia, at least Europeans have been out buying cars: European car sales rose +7.6% in February, and was the sixth straight month of increasing sales.

China’s growth continues to slow.  Chinese industrial production dropped from +9.7 percent year-over-year to +8.6 percent in February, the lowest since 2009. The weak number calls into question whether China will meet the government’s growth target of 7.5%.  Retail sales growth also fell sharply in February, to +11.8% from a year ago. The growth rate is the lowest in nine years.

Lastly, as a fitting tribute to the mismanagement of Venezuela’s late socialist President Hugo Chavez, annualized inflation in Venezuela was reported by its Central Bank as 57.3% in February; central bank president Nelson Merentes admitted the obvious, that Venezuela is in the midst of an economic crisis.

(sources: Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com)

The ranking relationship (shown in Fig. 5) between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market.

The average ranking of Defensive SHUT sectors rose sharply to 11.0 from the prior week’s 14.8, while the average ranking of Offensive DIME sectors fell to 14.8 from the prior week’s 12.8.  The Defensive SHUT sectors have grabbed a new lead over the Offensive DIME sectors.

Note: these are “ranks”, not “scores”, so smaller numbers are higher and larger numbers are lower.

Summary:

The US led the recovery from 2011’s travails, and continues to be the strongest among all global markets.  However, the over-arching Secular Bear Market may remain in place even as new highs are reached in the US.

Because we may still be in a Secular Bear, we have no expectations of runs of multiple double-digit consecutive years, and we expect poor market conditions to be a frequent occurrence.  Nonetheless, we remain completely open to any eventuality that the market brings, and our strategies, tactics and tools will help us to successfully navigate whatever happens.

If you have any questions about the FBIAS™ Fact-Based Investment Allocation Strategy portfolios, feel free to give your Anthony Capital, LLC advisor a call at 303-734-7178 or by scheduling a private virtual meeting/conference call.  We work with clients from all over the country and would be happy to help.

You can also open up an online account by clicking HERE at our preferred custodian, Interactive Brokers, LLC.

Sincerely,

Dave Anthony, CFP®, RMA®

FBIAS™ for the week ending 7/24/2015

FBIAS™ Fact-Based Investment Allocation Strategy for the week ending 7/24/2015

The very big picture:

In the “decades” timeframe, the question of whether we are in a continuing Secular Bear Market that began in 2000 or in a new Secular Bull Market has been the subject of hot debate among economists and market watchers since 2013, when the Dow and S&P 500 exceeded their 2000 and 2007 highs.  The Bear proponents point out that the long-term PE ratio (called “CAPE”, for Cyclically-Adjusted Price to Earnings ratio), which has done a historically great job of marking tops and bottoms of Secular Bulls and Secular Bears, did not get down to the single-digit range that has marked the end of Bear Markets for a hundred years, but the Bull proponents say that significantly higher new highs are de-facto evidence of a Secular Bull, regardless of the CAPE.  Further confusing the question, the CAPE now has risen to levels that have marked the end of Bull Markets except for times of full-blown market manias.  See graph below for the 100-year view of Secular Bulls and Bears.

Even if we are in a new Secular Bull Market, market history says future returns are likely to be modest at best.   The CAPE is at 26.7, down from the prior week’s 27.3, and approximately at the level reached at the pre-crash high in October, 2007.  In fact, since 1881, the average annual returns for all ten year periods that began with a CAPE at this level have been just 3%/yr (see graph below).

This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold.  Although a mania could come along and cause the CAPE to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns more typical of a rip-snorting Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate.  The US Bull-Bear Indicator (see graph below) is at 50.81, down from the prior week’s 52.3, and continues in Cyclical Bull territory.  The current Cyclical Bull has taken the US and some of Europe to new all-time highs, but many of the world’s markets have yet to top 2007’s levels – particularly in the Emerging Markets area.

In the intermediate picture:

The intermediate (weeks to months) indicator (see graph below) is Negative and ended the week at 11, down sharply from the prior week’s 17.  Separately, the quarter-by-quarter indicator – based on domestic and international stock trend status at the start of each quarter – gave a positive indication on the first day of July for the prospects for the third quarter of 2015.

Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2 above), whether we are in a new Secular Bull or still in the Secular Bear, the long-term valuation of the market is simply too high to sustain rip-roaring multi-year returns.  In the Cyclical (months to years) timeframe (Fig. 3 above), all major equity markets are in Cyclical Bull territory.  In the Intermediate (weeks to months) timeframe (Fig. 4 above), US equity markets are rated as Negative.  The quarter-by-quarter indicator gave a positive signal for the 3rd quarter:  US equities were in an uptrend at the start of Q3 2015, sufficient to signal a higher likelihood of an up quarter than a down quarter. 

In the markets:

Stocks declined for the week as disappointing earnings from some key companies weighed on the benchmarks.  The continued slump in commodity prices also added to the gloom.  The Dow Jones Industrial Average fell back into negative territory for the year-to-date, giving up 517 points and -2.86% for the week.  The tech-heavy Nasdaq also declined, but less than the blue chips, at -2.33%.  The LargeCap S&P 500 sank -2.21%, the MidCap S&P 400 ended down -2.06%, and the SmallCap Russell 2000 fell the hardest, down -3.24%.  Canada’s TSX, hard hit by the continuing declines in gold and oil, retreated by -3.12%.

In international markets, Developed International declined a relatively modest-2.17%, but Emerging Markets plunged -4.39%.  Weakness spread across European markets as the United Kingdom’s FTSE dropped -2.88%, Germany’s DAX gave up -2.79%, and France’s CAC40 declined -1.31%.  In Asia, China’s Shanghai index bucked the trend and had its second week of gains after its plunge last month.  Japan’s Nikkei held the 20,000 level, finishing the week down 0.52%.

In commodities, an ounce of gold continued its 6th week of declines, down -2.99%.  Silver also continued its decline, down -0.68%.  A barrel of West Texas Intermediate crude oil plunged -5.55% to $47.96 a barrel, its 6th straight weekly decline.  Copper continued its relentless plunge, down an additional -4.25%.  Copper has dropped over 17% in 10 weeks.  If the price of copper truly is a harbinger of coming worldwide economic conditions, as many believe it to be, there must be big economic trouble brewing.

In US economic news, initial jobless claims reached a 42 year low as there were 255,000 initial jobless claims last week, the lowest since November 1973.  Existing home sales jumped +9.6% versus a year ago and ran at a 5.49 million annual pace in June, beating expectations of 5.4 million.  Existing home prices reached an eight year high and sales were at the fastest pace since February, 2007.  All regions saw year-over-year gains, for the sixth straight month.  The Federal Housing Finance Agency (FHFA)’s home price index rose +5.7% versus a year ago, and has returned to its 2006 levels.  But despite the strong showing in existing home sales, new-home sales widely missed expectations as sales ran at a rate of 482,000 versus expectations of 550,000 in June, and down 7% from May. 

The Conference Board’s Leading Economic Indicators (LEI) index was stronger than expected in its June reading.  The index rose +0.6%, reaching a level not seen since 2006. 

Credit reporting firm Experian reported that consumer defaults were near all-time lows in June as Americans remained cautious about expanding their borrowing, even as the economy improves.  In the report Experian also noted that a pickup in inflation may pressure consumers but that “consumers remained optimistic and are primed to spend.”

St. Louis Federal Reserve President James Bullard stated that the likelihood of a September fed rate hike is greater than 50%.  He said that the Fed expects the economy above 3% in the second half and that there was no longer a need for “emergency” monetary policy, in his opinion, and that turbulence in Greece and China should not influence US policymaking.

In Canada, wholesale shipments declined -1% in May, missing forecasts of just a -0.2% drop; however, April was up a stronger +1.7%.  A weekly gauge of Canadian consumer sentiment dropped to a four month low last week after the Bank of Canada said the nation’s economy “contracted modestly”.  The latest telephone polling of Canadian consumers by Nanos Research Group shows optimism over the economy’s prospects has deteriorated to the lowest level since 2008.  Canadians also grew more pessimistic about the outlook for real estate, job security, and personal finances.  Canada’s Central Bank reduced its 2015 gross domestic product forecast by almost half to just 1.1% and cut its key interest rate to 0.5%.  The bank blames the weakness on damage from the oil price shock and the “puzzling” lack of a rebound in non-energy exports.

In the United Kingdom, minutes released by the Bank of England revealed that the bank has moved closer to a rate hike as policymakers were inclined to vote to raise rates in early July, but market turbulence in China and Greece deterred them from taking action.  The central bank’s governor has hinted that a rate rise is due sometime in 2015.  Markit’s flash Purchasing Managers Index (PMI) for Eurozone composite activity declined -0.5 point to 53.7, and the manufacturing component dropped -0.3 point to 52.2.  Markit noted that these numbers are still relatively strong, given that the region has struggled to come back from the downturn.

Strong exports in the second quarter strengthened the German economy, according to the Bundesbank.  Orders for domestic and international goods also bolstered industry, the central bank said.  Producer prices came in matching expectations of a -0.1% dip in June.  For the year, the German producer price index is -1.4% lower.

In China, manufacturing activity declined in July missing expectations for a slight gain, according to the flash PMI.  It reached a 15 month low of 48.2, down from 49.4, and remained in contraction (<50) territory.  New orders, new export orders, and employment all decreased.

Finally, the price of an ounce of gold has continued to slide, as noted above, which has frustrated gold investors who believe that the various central banks around the world, engaging in profligate amounts of quantitative easing,  will inevitably debase their nation’s currency and lead to inflation—or even hyperinflation.  Some economists and financial analysts view gold as a “barbarous relic”—the term for gold believed to be first coined by John Maynard Keynes.   Warren Buffett said this about gold in a speech he gave at Harvard in 1998: “(It) gets dug out of the ground in Africa or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head.”  In truth, there are lots of uses for gold other than simply putting it in a vault – some of them obvious, some not. 

Here is a table from Morgan Stanley that details the source and destination of gold.  Not surprisingly, Jewelry is the #1 destination, with Coins the #2 destination.  Surprisingly, though, dentistry still consumes 55 metric tons of gold annually, and electronics another 300 metric tons.  “Investment” is just 25% of total demand.

(sources: Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com)

The ranking relationship (shown in Fig. 5) between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market.

The average ranking of Defensive SHUT sectors rose to 12.3 from the prior week’s 13, while the average ranking of Offensive DIME sectors fell to 18.5 from the prior week’s 18.3.  The Defensive SHUT sectors expanded their lead in rankings over the Offensive DIME sectors.   Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks.

Summary:

The US has led the worldwide recovery, and continues to be among the strongest of global markets.  However, the over-arching Secular Bear Market may remain in place globally even as new highs are reached in the US.

Because the world may still be in a Secular Bear, we have no expectations of runs of multiple double-digit consecutive years, and we expect poor market conditions to be a frequent occurrence.  Nonetheless, we remain completely open to any eventuality that the market brings, and our strategies, tactics and tools will help us to successfully navigate whatever happens.

If you have any questions about the FBIAS™ Fact-Based Investment Allocation Strategy portfolios, feel free to give your Anthony Capital, LLC advisor a call at 303-734-7178 or by scheduling a private virtual meeting/conference call.  We work with clients from all over the country and would be happy to help.

You can also open up an online account by clicking HERE at our preferred custodian, Folio Institutional.

Sincerely,

Dave Anthony, CFP®, RMA®

FBIAS ™market update for the week ending 10/07/2016

 

FBIAS ™market update for the week ending 10/07/2016

The very big picture:

In the “decades” timeframe, the question of whether we are in a continuing Secular Bear Market that began in 2000 or in a new Secular Bull Market has been the subject of hot debate among economists and market watchers since 2013, when the Dow and S&P 500 exceeded their 2000 and 2007 highs. The Bear proponents point out that the long-term PE ratio (called “CAPE”, for Cyclically-Adjusted Price to Earnings ratio), which has done a historically great job of marking tops and bottoms of Secular Bulls and Secular Bears, did not get down to the single-digit range that has marked the end of Bear Markets for a hundred years, but the Bull proponents say that significantly higher new highs are de-facto evidence of a Secular Bull, regardless of the CAPE. Further confusing the question, the CAPE now has risen to levels that have marked the end of Bull Markets except for times of full-blown market manias. See the graphic below for the 100-year view of Secular Bulls and Bears.

clip_image002_thumb.gif

Even if we are in a new Secular Bull Market, market history says future returns are likely to be modest at best. The CAPE is at 26.72, down from the prior week’s 26.90, and only a little lower than the level reached at the pre-crash high in October, 2007. Since 1881, the average annual return for all ten year periods that began with a CAPE around this level have been just 3%/yr.

clip_image008.gif

This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold. Although a mania could come along and cause the CAPE to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns more typical of a rip-snorting Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate. The U.S. Bull-Bear Indicator is in Cyclical Bull territory at 61.97, down from the prior week’s 63.77.

clip_image008_thumb.gif

In the intermediate picture:

The Intermediate (weeks to months) Indicator turned positive on June 29th. The indicator ended the week at 30, down from the prior week’s 31. Separately, the Quarterly Trend Indicator – based on domestic and international stock trend status at the start of each quarter – was positive entering October, indicating positive prospects for equities in the fourth quarter of 2016.

clip_image012.gif

Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2), whether we are in a new Secular Bull or still in the Secular Bear, the long-term valuation of the market is simply too high to sustain rip-roaring multi-year returns. The Bull-Bear Indicator (months to years) is positive (Fig. 3), indicating a potential uptrend in the longer timeframe. The Quarterly Trend Indicator (months to quarters) is positive for Q4, and the Intermediate (weeks to months) timeframe is also positive. Therefore, with all three indicators positive, the U.S. equity markets are rated as Very Positive.

In the markets:

U.S. stocks fell modestly for the week as investors awaited the start of the 3rd quarter earnings season. All major indexes finished in the red, with the typically more volatile smaller cap indexes declining the most. The Dow Jones Industrial Average fell -68 points to 18,240, a loss of -0.37%. The NASDAQ Composite fell -19 points to 5,292, also down -0.37%. The LargCap S&P 500 declined -0.67%, while the S&P 400 MidCap index lost -1.18%, and the SmallCap Russell 2000 brought up the rear, ending the week down -1.21%.

In international markets, Canada’s TSX reversed from recent gains, falling -1.08%. The United Kingdom’s FTSE 100 had a strong week rallying +2.1%, while on the mainland of Europe France’s CAC 40 was basically flat, up just +0.04%, and Germany’s DAX fell slightly, down -0.19%. In Asia, Japan’s Nikkei was up a strong +2.49%, along with Hong Kong’s Hang Seng which rallied +2.38%, although China’s Shanghai Composite Index pulled back by -0.96%. Developed international markets as a group, as measured by the MSCI EAFE Index, ended down -0.93% while emerging markets as a group, as measured by the MSCI Emerging Markets Index, rose +0.64%.

In commodities, precious metals had another difficult week, this time led by a -9.5% plunge in Silver and a -4.95% drop in Gold. The industrial metal copper, viewed by many as a proxy for the economic health of the global economy, also ended down -2.13%. On the positive side, crude oil rallied for a 3rd straight week, rising +3.25% to $49.81 for a barrel of West Texas Intermediate crude oil.

In U.S. economic news, the economy added +156,000 new jobs last month, a gain “good enough” that some analysts suggest will give the Federal Reserve the green light to raise interest rates. Job creation in some industries such as energy and manufacturing has slowed since last year, but most segments of the economy are adding workers. Professional services, high-tech employers, health care companies, and restaurants led the hiring in September. Jim Baird, chief investment officer in Plante Moran Financial Advisors said “the jobs market remains a relative bright spot in an environment that continues to be characterized by moderate growth overall.” The unemployment rate rose slightly to 5%, the first uptick since April, mostly due to the fact that an additional 444,000 people entered the labor force.

The number of people who applied for new unemployment benefits fell by 5000 to 249,000 last week, the second lowest level since the end of the Great Recession. Economists had been expecting a reading of 256,000. Initial jobless claims have been under 270,000 for 14 straight weeks, an achievement not seen since the early 70s. The low level of layoffs helps explain how the unemployment rate was able to fall below 5% this year for the first time since 2008. The less-volatile smoothed four week average of initial claims dropped -2,500 to 253,500. Continuing jobless claims, those people already receiving unemployment checks, declined -6,000 to 2.06 million in the week ended September 24 – the lowest level since late summer of 2000.

Private-sector employers added 154,000 private sector jobs in September, lower than the 175,000 reported by payroll processor ADP. The increase was the smallest since April and missed expectations of 170,000. In the report, small private-sector businesses added 34,000 jobs, medium businesses added 56,000, and large businesses added 64,000. Most of those gains were in the service sector with 151,000 jobs added, while goods producers added 3,000, and manufacturers actually lost 6,000. Mark Zandi, chief economist at Moody’s Analytics, said job growth should be expected to slow as the U.S. nears full employment.

The Institute for Supply Management (ISM) services index accelerated last month to an 11 month high of 57.1, beating expectations by 4 points. Growth in the services sector has now reached 80 straight months. In the ISM report, business activity surged +8.5 points to 60.3, while the index for new orders was up +8.6 points to 60. Employment in services was also strong, up +6.5 points to 57.2. Numbers above 50 indicate expansion.

Breaking recent trends, manufacturers reported improved business conditions last month, according to the Institute for Supply Management (ISM) manufacturing index. The index rose back into expansion to 51.5, after dipping into contraction (sub-50) territory in August. Forecasts had been for a reading of 50.6. The survey of executives reported that new orders rose, but the industry is still experiencing soft demand in the United States and weak exports. Richard Moody, chief economist at Regions Financial stated “All in all, we’d rather have the headline index above 50.0 than below it, but the bottom line is that the manufacturing sector still faces challenging conditions.” On a positive note, the measure of new orders jumped to 55.1 from 49.1 and a gauge of production increased +3.2 points to 52.8.

Research firm IHS Markit’s Purchasing Managers Index (PMI) manufacturing index report was considerably less enthusiastic than the ISM report. The PMI report indicated that production declined in September and that orders are the weakest of the year. Chris Williamson, chief business economist at IHS Markit stated “Manufacturing growth slowed to a crawl in September, suggesting the economy is stuck in a soft-patch amid widespread uncertainty in the lead-up to the presidential election.”

Auto sales in the United States began to slow in September with the largest automakers reporting declines. General Motors reported sales slipped -0.6% and Ford’s sales fell -8.1% despite efforts to keep dealer lots full and offers of sweetened incentives for buyers. But Toyota reported that its sales rose +1.5%, along with Nissan that reported an overall +4.9% gain. Industrywide, U.S. light vehicle sales are expected to have fallen -1% compared with the same time last year, according to JD Power. In addition, retail sales, which strip out sales to fleet buyers are seeing by JD Power as falling -1.4%, the fifth decline in the past seven months.

U.S. construction spending weakened, according to the Commerce Department, dropping -0.7% in August. Year over year, the spending in August of $1.14 trillion was -0.3% lower than a year ago. The decline was led by steep cuts in spending on public projects, down -8.8% from a year ago and the lowest level since March 2014. Spending on private projects fell -0.3% in August. Within that category, residential spending fell -0.2% and nonresidential spending dropped -1.1%.

In Canada, for the first time in two years the economy managed two consecutive monthly employment gains, adding +67,200 jobs last month. Statistics Canada reported that the gain was driven by the biggest increase in self-employment in seven years. “If you can’t find work, you create your own work,” said Vincent Ferrao, at the Labour Division of Statistics Canada. “It makes sense, given fewer people were working for companies and more people were working on their own.” Most of the job gains came in Quebec, Alberta and New Brunswick, Statistics Canada said, while employment in other provinces was basically steady — most notably in Ontario and British Columbia, which had previously been showing labor gains. The unemployment rate remained unchanged at 7% as more Canadians reported they were actively looking for work.

Across the Atlantic in the United Kingdom, the International Monetary Fund (IMF) stated that Britain will be the fastest-growing G-7 economy this year. The IMF also accepted the fact that its prediction of a post-Brexit financial crash was overly pessimistic. The Washington-based IMF said Britain would have a “soft landing” in 2016, with growth of +1.8%. However, it is sticking with its prediction of sub-par expansion in 2017, sticking to its view that the economy would eventually suffer from its break with the EU.

On Europe’s mainland, French President Francois Hollande gave a speech demanding that the United Kingdom pay a heavy price for deciding to leave the EU. The French President called the Brexit referendum the biggest crisis in the EU’s history and said its future depended on a determination to be tough during exit talks. President Hollande stated: “There must be a threat, there must be a risk, there must be a price. Otherwise we will be in a negotiation that cannot end well.” The comments followed similar tough talk from German Chancellor Angela Merkel, none of which seemed to deter UK Prime Minister May.

In Germany, politicians have accused the US of waging economic war as concern continues to rise among that country’s political and corporate leaders over the financial health of Deutsche Bank, its largest financial institution. Some of Germany’s top corporate leaders have come to the support of the bank, stressing its importance to the economy and confidence in the leadership of the bank’s CEO John Cryan. Deutsche has been under intense pressure since the United States Department of Justice requested the bank pay a $14 billion settlement to settle claims of its mis-selling of mortgage securities. Shares fell to their lowest level since 1983 last week before a rebound following rumors that the settlement was closer to being a much smaller $5.4 billion.

The IMF has lowered its global economic growth forecast for China by -0.1%, to -3.1% based on China’s efforts to switch its economic engine away from investment and towards consumption and services. According to its forecasts, the change would reduce China’s GDP growth down to 6.6% this year, and 6.2% for next year. Frederic Neumann, co-head of Asian Economic Research at HSBC stated, “We are a little bit cautious because we think the restructuring in China has barely begun. We would expect the Chinese economy to slow down next year, and that could put headwinds for emerging markets going into 2017.”

In Japan, Prime Minister Shinzo Abe is working on a ¥1 trillion ($9.6 billion) economic cooperation deal with Russia. The envisioned cooperation covers 41 items chiefly concerning infrastructure construction, resource development and improvement in the quality of life in the Russian Far East and Siberia. Among the items are improvement of three Far Eastern ports — Vladivostok, Zarubino, and Vostochny — as well as a ¥600 billion ($5.8 billion) project to construct a petrochemical plant near Vladivostok.

Finally, as the U.S. economy continues to create jobs there still appears to be no shortage of people looking for work. The U.S. economy has added over 11.5 million jobs since the bottom of the Great Recession, but that growth has slowed over the past 6 months. The slowdown is leading some to speculate that we are nearing full employment. One number in the monthly jobs report that doesn’t get a lot of attention is the available labor supply—the number of people who aren’t working, but would like to. Over the past year, this “available” work force has actually grown despite the creation of 2.4 million jobs. It appears that as more jobs are created, even more people are being pulled off the sidelines looking for work. Even as headlines abound that the U.S. has achieved “full employment”, there are nonetheless more than 14 million people out there who’d like to start earning a paycheck, the most in more than a year.

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Figs 1-5 source W E Sherman & Co, LLC)

The ranking relationship shown in the graphic below between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market. The average ranking of Defensive SHUT sectors fell to 23.75 from 21.5, while the average ranking of Offensive DIME sectors rose to 14.0 from the prior week’s 19.5. The Offensive DIME sectors have widened their lead over the Defensive SHUT sectors. Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks.

clip_image014_thumb.gif

Contact Us Today:

If you have any questions about the FBIAS™ Fact-Based Investment Allocation Strategy portfolios, feel free to give your Anthony Capital, LLC advisor a call at 303-734-7178 or by scheduling a private virtual meeting/conference call. We work with clients from all over the country and would be happy to help.

You can also open up an online account by clicking HEREat our preferred custodian, Folio Institutional.

Sincerely,

Dave Anthony, CFP®, RMA®

 

FBIAS™ market update for the week ending 6/16/2017

FBIAS™ market update for the week ending 6/16/2017

The very big picture:

In the “decades” timeframe, the question of whether we are in a continuing Secular Bear Market that began in 2000 or in a new Secular Bull Market has been the subject of hot debate among economists and market watchers since 2013, when the Dow and S&P 500 exceeded their 2000 and 2007 highs. The Bear proponents point out that the long-term PE ratio (called “CAPE”, for Cyclically-Adjusted Price to Earnings ratio), which has done a historically great job of marking tops and bottoms of Secular Bulls and Secular Bears, did not get down to the single-digit range that has marked the end of Bear Markets for a hundred years, but the Bull proponents say that significantly higher new highs are de-facto evidence of a Secular Bull, regardless of the CAPE. Further confusing the question, the CAPE now has risen to levels that have marked the end of Bull Markets except for times of full-blown market

clip_image002

Even if we are in a new Secular Bull Market, market history says future returns are likely to be modest at best. The CAPE is at 29.81, up slightly from the prior week’s 29.79, and now exceeds the level reached at the pre-crash high in October, 2007. Since 1881, the average annual return for all ten year periods that began with a CAPE around this level have been just 3%/yr (see Fig. 2).

clip_image008

This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold. Although a mania could come along and cause the CAPE to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns more typical of a rip-snorting Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate. The U.S. Bull-Bear Indicator (see Fig. 3) is in Cyclical Bull territory at 69.08, up from the prior week’s 68.72.

clip_image012

 

In the intermediate and Shorter-term picture:

The Shorter-term (weeks to months) Indicator (see Fig. 4) turned negative on March 24th. The indicator ended the week at 22, down from the prior week’s 23. Separately, the Intermediate-term Quarterly Trend Indicator – based on domestic and international stock trend status at the start of each quarter – was positive entering April, indicating positive prospects for equities in the second quarter of 2017.

clip_image014

 

 

 

Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2), whether we are in a new Secular Bull or still in the Secular Bear, the long-term valuation of the market is simply too high to sustain rip-roaring multi-year returns. The Bull-Bear Indicator (months to years) is positive (Fig. 3), indicating a potential uptrend in the longer timeframe. In the intermediate timeframe, the Quarterly Trend Indicator (months to quarters) is positive for Q1, and the shorter (weeks to months) timeframe (Fig. 4) is negative. Therefore, with two indicators positive and one negative, the U.S. equity markets are rated as Neutral.

In the markets:

U.S. Markets: The major U.S. market indexes ended the week mixed. The tech-heavy Nasdaq Composite index had its second down week as the sell-off in mega-cap tech shares continued to weigh on the market. Of note, the Nasdaq’s so-called FAANG companies of Facebook, Amazon, Apple, Netflix, and Google represent well over $2 trillion in market capitalization alone. For the week, the Dow Jones Industrial Average gained half a percent to close at 21,384. The Nasdaq fell -0.9%, or 56 points, ending the week at 6,151. By market cap, large caps outperformed their smaller cap brethren. The S&P 500 large cap index was essentially flat, rising 0.06%, while the S&P 400 mid cap index fell -0.23%, and the small cap Russell 2000 retreated -1.05%.

International Markets: Canada’s TSX fell -1.8%, giving up this year’s gains. The United Kingdom’s FTSE also ended the week down by pulling back -0.8%. Major markets ended in the red across the board on Europe’s mainland. France’s CAC 40 retreated -0.69%, Germany’s DAX fell -0.49%, and Italy’s Milan FTSE gave up -0.86%. Markets were red in Asia as well. China’s Shanghai Composite fell -1.1%, along with Japan’s Nikkei which declined -0.35% and Hong Kong’s Hang Seng which retreated -1.55%. As grouped by Morgan Stanley Capital Indexes, developed international markets ticked up 0.1% for the week, while emerging markets declined -0.9%.

Commodities: Precious metals experienced their second down week. Gold fell -$14.90 to $1256.50 an ounce, a decline of -1.17%. Silver, gold’s more volatile cousin, also finished the week down, falling -3.26% to $16.66 an ounce. Oil had its fourth straight week of losses, retreating -1.88% to close at $44.97 per barrel of West Texas Intermediate crude oil. Copper, seen by some analysts as an indicator of worldwide economic health, retraced last week’s gain by retreating -3.23%.

U.S. Economic News: The number of Americans applying for first time unemployment benefits fell 8,000 to 237,000 last week, according to the Labor Department. New applications for benefits have remained under the key 300,000 threshold, used by analysts to indicate a “healthy” jobs market, for 119 straight weeks—its longest run since the early 1970’s. In addition, the number of people already receiving unemployment checks totaled less than 2 million for its ninth straight week. The last time these so-called continuing claims remained under 2 million for this long was in 1973. Combined, the total number of people applying for unemployment benefits and those already receiving them is now at a 45-year low.

Confidence among the nation’s home builders ticked down slightly in June, but remained near historically high levels according to the National Association of Home Builders (NAHB)/Wells Fargo housing market index. The NAHB’s housing market index fell 2 points to 67, after a downward revision May’s earlier-reported reading of 70. Any readings over 50 indicate that more builders view conditions as improving. In the details, the components measuring current sales conditions fell 2 points to 73, along with the index measuring sales expectations in the next six months, which also fell 2 points to 76. The measure of buyer traffic likewise retreated 2 points to 49.

The National Federation of Independent Business (NFIB) said its small-business optimism index remained steady at 104.5 in May from the prior month. The flat reading was seen as a positive by analysts as the sentiment index had fallen for three straight declines the prior month. Business owners are waiting for action in Washington regarding tax relief and rising healthcare costs. NFIB President Juanita Duggan said small business owners remain optimistic that tax and healthcare reforms can pass Congress. Confidence among small-business owners still remains at historically high readings following December’s surge by the largest amount in the 40-year history of the survey. In the details, five of the ten index components gained, four declined, and one remained unchanged. Of concern, only a net 28% of owners plan on making capital outlays—well below historic levels.

Inflation at the wholesale level remained flat last month following the sharp 0.5% increase in April, according to the Bureau of Labor Statistics. Lower costs for gasoline and other fuels kept in check upward price pressures in other areas of the economy. Inflation is becoming more widespread this year after being negligible for most of 2016. The 12-month rate of wholesale inflation stood at 2.4% in May, up from zero a year earlier and just a notch below a five-year high. Stripping out the volatile energy, food, and retail trade margins, core wholesale costs fell 0.1%. The core rate of inflation was up 2.1% over the past 12 months—this is the measure that gets the most attention from Wall Street and the Fed.

For American consumers, the cost of goods and services fell last month for the second time in three months as inflation for consumers continued to recede. The Consumer Price Index, known as the cost of living fell a seasonally-adjusted 0.1% last month with the drop in the price of gasoline (again) playing a major role. For consumers, the rate of inflation over the past 12 months slowed to a 1.9% back under the Federal Reserve’s 2% target. Despite the retreat the Federal Reserve still voted to hike interest rates at its meeting this week, due in large part to the surge in price pressures that accelerated at the end of last year. In the details of the report, gas prices sank 6.4%, while the cost of food rose for the fifth straight month. Stripping out the volatile food and energy categories, the so-called core CPI rose 0.1% in May. Over the last 12 months, the core CPI fell to 1.7% in May from 1.9% in April.

Retailers in the United States reported their biggest decline in sales in 16 months with auto dealers and gasoline retailers bearing the brunt of the weakness. The reversal last month retraced most of April’s 0.4% jump in sales. Overall, retail sales continue to increase at a pace consistent with the steady growth in the U.S. economy. Sales are up 3.9% in the first five months of 2017 compared to the same period in 2016. Gus Faucher, chief economist at PNC Financial Services stated, “More jobs, rising wages, low inflation, rising home sales, and low interest rates will continue to push consumer spending forward in 2017.” Stripping out auto and gasoline sales, retail sales were unchanged according to the Commerce Department. The bright spot of the report continued to be internet sales, with an increase of 0.8%. Shoppers continued their migration from brick-and-mortar stores to internet retailers as traditional department store sales fell sharply, losing 1% in May—their worst performance in almost a year.

The Federal Reserve lifted a key interest rate and laid out its plan to shrink its massive $4.5 trillion balance sheet this week. In a move that was widely expected, the Fed raised its benchmark federal-funds rate by a quarter percentage point to 1-1.25%–its third increase in a year and a half. The move will increase the cost of borrowing for consumers and business to help stave off the threat of excessive inflation and an overheated economy. Senior Fed officials also reiterated their intention to raise interest rates just one more time this year in the face of the unexpected recent softening in inflation data. The recent weak data gives the central bank the latitude to proceed more slowly with rate hikes if it so desires. Paul Ashworth, chief U.S. economist at Capital Economics stated, “The recent run of weaker core inflation readings has clearly rattled some Fed officials.” Still, Fed Chair Janet Yellen and other prominent members point to the tight labor market as a sign that price pressures are more likely to intensify. “Conditions are in place for inflation to move up,” Yellen said in a press conference after the Fed action.

In the “City of Brotherly Love”, the Philadelphia Fed’s manufacturing index retreated 11.2 points this month to 27.6. The reading was seen as a positive because economists had expected the index to fall to 24. The decline was expected following May’s second strongest reading in almost 30 years. In the details, a slowdown in the pace of shipment growth was responsible for most of the decline. The shipments index tumbled to 28.5 from 39.1 in May. On a positive note, new orders ticked up to 25.9 from 25.4 in the previous month.

In New York, manufacturing rebounded to its highest level since 2014 in a further sign of strength for the nation’s factories. The New York Fed’s Empire State index rose over 20 points to 19.8 in June from -1 in May. The new orders index rose to 18.1 after a -4.4 reading last month. The Empire State index only tracks factory activity in New York, but economists use the data as an early indication of factory output nationwide. The Empire State Index has risen seven of the last eight months. The reading is compiled from a survey of about 200 manufacturers in New York State.

International Economic News: After two years, Canada’s economy appears to be taking a positive turn. According to the latest Royal Bank of Canada Economic Outlook, consumer spending, housing starts, and a strong turnaround in business investment are largely responsible for the continued momentum that continues to build on last year’s gains. Bank of Canada governor Stephen Poloz said the economy is rebounding on a variety of fronts suggesting that the interest rate cuts put in place in 2015 “have largely done their work.” Senior Deputy Governor Carolyn Wilkins said that Canada’s economy is picking up after a period of low oil prices in 2014. The Bank of Canada is assessing whether further economic stimulus is still required, she said. Poloz refused to make any predictions about whether that means Canadians should expect a rate hike in the near future. Naysayers, however, point to the overheated real estate market as a bomb waiting to detonate the Canadian economy.

In the United Kingdom, the Bank of England came closer to raising interest rates this week than at any time over the past six years according to its rate-setting Monetary Policy Committee (MPC). In an unexpectedly close vote, MPC members voted 5-3 to keep rates at their historic low of 0.25% on the grounds that the U.K. economy’s recent weakness would keep inflation under control. In its statement, all of the MPC members agreed that the “inflation overshoot relative to the (bank’s 2%) target could be more pronounced than previously thought.” The committee was split on whether there were enough signs of life in the economy to offset the recent weakness in consumer spending from slowing wage growth and rising inflation.

On Europe’s mainland, the Bank of France maintained its second quarter GDP growth forecast of 0.5%. In addition, it anticipated an increase in the services and construction sectors for June. The central bank’s business climate survey for the manufacturing industry came in at 105, matching April’s reading of its highest level in six years. Its business climate indicator for services reading was 101, also matching April’s number.

In Germany, apparently what’s good for Germans is what’s good for the EU. According to a paper released by Swiss-based consultancy Prognos, the German economy is responsible for 4.8 million jobs in all of Europe. The paper asserts that high demand in Germany does not slow development in neighboring countries, but actually is an important driving force behind their growth. The Bavarian Industry Association (BIA) requested the report because of the continued criticism of Germany’s current account surplus from U.S. President Donald Trump and other world leaders. In 2015, Germany imported goods worth around $620 billion (555 billion euros) from other EU countries. A downturn in the German economy would have the effect of lowering economic output across the European Union by 36 billion euros by 2023. “Our study debunks the myth that German economic competitiveness harms our neighbors,” says Bertram Brossardt, head of the BIA.

In Asia, the International Monetary Fund (IMF) reported China’s economy generally remained on solid footing but tighter monetary policy, a cooling housing market, and slowing investment will weigh on the nation’s economy in the coming months. Still, Beijing is expected to meet its annual 6.5% annual economic growth target. The IMF raised its growth forecast for the country to 6.7% as it recommended China accelerate reforms and rein in credit. Economists at Nomura forecast China’s economy will grow an annual 6.8% in the second quarter, only marginally less than the 6.9 percent in the first quarter and providing enough momentum to achieve the government’s full-year target even if there is some second-half softening.

In Japan, the Bank of Japan voted to keep its lax monetary policy intact noting that its policies were supporting improvement in the world’s third largest economy. A statement issued by the central bank said it expects demand to accelerate as the central bank held its key interest rate at an ultralow -0.1%. Of interest, U.S. pension giant TIAA plans to invest about $1 billion in Japanese real-estate. The pension is betting that “Abenomics”, has put the Japanese economy in a position that it will see solid growth in the coming years. The nearly 100-year-old firm, known for offering retirement products to teachers, plans to invest in retail and logistic sites around Tokyo and Osaka. “For the global markets that we’re looking at, the story in Japan, particularly in Tokyo, looks really interesting,” Harry Tan, head of research for Asia Pacific at TH Real Estate, TIAA’s real estate arm.

clip_image004

Finally: As the stock market continues to grind higher and investors become more complacent we turn our attention to one data point that has remained a “stubbornly fail-safe marker” of economic contraction since 1960. Every time Commercial & Industrial (C&I) loan balances have declined or stagnated—a recession was already in progress or was imminent. This can be seen in the following graphic, from Zero Hedge using Federal Reserve data.

clip_image006

On a year-over-year basis, after growing at a 7% year over year pace at the beginning of 2017, the latest bank loan update from the Fed showed that the annual rate of increase in C&I loans is down to just 1.6%–its lowest since 2011. Should the rate of loan growth deceleration persist, in roughly four to six weeks the U.S. would post its first year-over-year loan contraction since the financial crisis. This graphic illustrates how steep the decline has been.

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, zerohedge.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Figs 1-5 source W E Sherman & Co, LLC)

The ranking relationship (shown in Fig. 5) between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market. The average ranking of Defensive SHUT sectors rose to 8.00 from the prior week’s 8.50, while the average ranking of Offensive DIME sectors fell to 16.75 from the prior week’s 14.75. The Defensive SHUT sectors further widened their lead over the Offensive DIME sectors. Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks.

Click here to start investing in FBIAS portfolios via our custodian, Folio Institutional.

Why you need a Retirement Income Road Map

Retirement is a series of irrevocable decisions, make sure that you have a Retirement Income Road Map from Anthony Capital, LLC to help guide you through the process.

retiremenet Income road map

What exactly is a Retirement Road Map?

noun
  1. a map, especially one designed for retirees, showing the income sources that they will have in retirement.
  2. a plan or strategy intended to achieve a particular goal, for example–making sure that you have enough money to live on in retirement.

A Retirement Road Map is a critical piece of Anthony Capital, LLC’s integrated and comprehensive retirement income planning process. A properly designed retirement income road map should detail exactly the steps that today’s affluent baby boomer retiree needs to take to create inflation adjusted income for life. It should outline:

  1. From were and from which accounts your income will come from in retirement.
  2. Provide for inflation adjusted retirement income
  3. Provide for tax free income
  4. Provide for guaranteed income
  5. Provide for investment income
  6. Provide for alternative income

8 Boxes Matrix--JUDE-PNG

When you combine the “Eight Essential Financial Decisions” that every affluent baby boomer must make to secure a successful retirement, you have a comprehensive, integrated, and rock-solid retirement income plan that can save today’s affluent baby boomer retirees hundreds of thousands of dollars in unnecessary fees, expenses, taxes, and penalties throughout their retirement lives.

To request your Retirement Income Road Map, contact us to get on our calendar!

Set up your complimentary review meeting today!

FBIAS™ Market update for the week ending 3/3/2017

 

The very big picture:

In the “decades” timeframe, the question of whether we are in a continuing Secular Bear Market that began in 2000 or in a new Secular Bull Market has been the subject of hot debate among economists and market watchers since 2013, when the Dow and S&P 500 exceeded their 2000 and 2007 highs. The Bear proponents point out that the long-term PE ratio (called “CAPE”, for Cyclically-Adjusted Price to Earnings ratio), which has done a historically great job of marking tops and bottoms of Secular Bulls and Secular Bears, did not get down to the single-digit range that has marked the end of Bear Markets for a hundred years, but the Bull proponents say that significantly higher new highs are de-facto evidence of a Secular Bull, regardless of the CAPE. Further confusing the question, the CAPE now has risen to levels that have marked the end of Bull Markets except for times of full-blown market manias. See Fig. 1 for the 100-year view of Secular Bulls and Bears.

Even if we are in a new Secular Bull Market, market history says future returns are likely to be modest at best. The CAPE is at 29.36, little changed from the prior week’s 29.34, and now exceeds the level reached at the pre-crash high in October, 2007. Since 1881, the average annual return for all ten year periods that began with a CAPE around this level have been just 3%/yr (see Fig. 2).

This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold. Although a mania could come along and cause the CAPE to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns more typical of a rip-snorting Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate. The U.S. Bull-Bear Indicator (see Fig. 3) is in Cyclical Bull territory at 74.28 up from the prior week’s 72.17.

In the intermediate and Shorter-term picture:

The Shorter-term (weeks to months) Indicator (see Fig. 4) turned positive on November 10th. The indicator ended the week at 33, unchanged from the prior week. Separately, the Intermediate-term Quarterly Trend Indicator – based on domestic and international stock trend status at the start of each quarter – was positive entering January, indicating positive prospects for equities in the first quarter of 2017.

Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2), whether we are in a new Secular Bull or still in the Secular Bear, the long-term valuation of the market is simply too high to sustain rip-roaring multi-year returns. The Bull-Bear Indicator (months to years) is positive (Fig. 3), indicating a potential uptrend in the longer timeframe. In the intermediate timeframe, the Quarterly Trend Indicator (months to quarters) is positive for Q1, and the shorter (weeks to months) timeframe (Fig. 4) is positive. Therefore, with all three indicators positive, the U.S. equity markets are rated as Positive.

In the markets:

The major U.S. indexes ended flat to modestly higher, mostly on the back of an impressive rally on Wednesday. The Dow Jones Industrial Average performed the best for the week, adding +183.95 points to close at 21,005. The technology-heavy NASDAQ Composite rose +0.44% to end the week at 5870. By market cap, large caps edged smaller caps. The LargeCap S&P 500 logged its fifth straight weekly gain, rising +0.67%, while the S&P 400 MidCap index added only +0.16%, and the SmallCap Russell 2000 trailed the others by ending the week down -0.03%.

In international markets, Canada’s TSX rebounded from last week’s weakness by rising +0.48%. Across the Atlantic, the United Kingdom’s FTSE surged +1.8% to an all-time high. On Europe’s mainland, major markets logged a very positive week. France’s CAC 40 jumped +3.09%, Germany’s DAX gained +1.89%, and Italy’s Milan FTSE surged +5.74%. In Asia, China’s Shanghai Composite index slumped -1.08%, while Japan’s Nikkei was up +0.96%. As defined by Morgan Stanley Capital International, emerging markets as a group ended down -0.8%, while developed markets as a group rose +0.9%.

In commodities, precious metals gave up their luster from the past few weeks. Gold fell for the first time in 5 weeks, falling -2.53% to $1,226.50 an ounce. Likewise, Silver gave up its gains of the last few weeks by falling ‑3.62% to $17.74 an ounce. The industrial metal copper remained essentially flat, rising just +0.02%. Oil continued trading in a narrow $52-$55 range, falling -1.22% to $53.33 a barrel for West Texas Intermediate crude oil.

In U.S. economic news, the number of Americans who applied for unemployment benefits last week fell by 19,000 to just 223,000—a new post-recession low. The low number of jobless claims reflects the strength of the U.S. labor market. New claims have been under the key 300,000 threshold that analysts use to define a healthy job market for 104 straight weeks, according to the Labor Department. The less-volatile smoothed four-week average of initial claims dropped by -6,250 to 234,250. That number is at its lowest level since April of 1973. Companies continue to report difficulty finding skilled workers to hire.

The National Association of Realtors (NAR) reported that its gauge of pending home sales fell in January as the market felt the weight of insufficient inventory and rising prices. The NAR’s index fell ‑2.8% to 106.4—its lowest level in a year. The index forecasts future sales by tracking real estate transactions in which a contract has been signed, but the deal has not yet closed. Housing markets were mixed by region. The Northeast and South saw gains of +2.3% and +0.4%, respectively, while in the Midwest and West, the index plunged ‑5% and ‑9.8%, respectively.

Home prices surged higher in December. The S&P/Case-Shiller 20-city index rose +5.6% in the three-month period ending in December, compared to a year ago. The broader national index was up +5.8% for the year in December, the biggest increase in two and half years. In the S&P/Case-Shiller report, the hottest markets were once again in the West: Seattle, Portland, and Denver saw home price increases of +10.8%, +10%, and +8.9%, respectively. The national price index is now +0.5% higher than its previous peak in July 2006, while the 20-city index is still 6.7% lower.

Manufacturing in the Chicago area surged higher last month. The Chicago Purchasing Managers Index (PMI) for February rose +7.1 points to 57.4 in February, its highest reading in more than 2 years. It was the indicator’s biggest single month gain since early 2016. The new orders PMI component jumped by +10.1 points, while the production gauge rose to a 13-month high. In addition, the prices-paid PMI component gained +7.2 points to 68.6—its highest level in two and half years. Commenting on the report, Shaily Mittal, senior economist at MNI Indicators, stated “With inflationary pressures on the rise and the job market having improved, the next rate hike could come soon, possibly in the coming quarter.”

The Institute for Supply Management (ISM) reported its national manufacturing index rose +1.5% to 57.5 in January, to its highest reading since August 2014. According to the report, 17 out of the 18 industries tracked showed growth. Textile mills and apparel, leather and allied products led industry growth, while furniture and related products were the only laggards. Looking at the individual components, the new-orders index rose +4.7 points to 65.1, while the production index added +1.5 point to 62.9. As with the PMI reports, ISM reports use a scale in which readings above 50 indicate expansion.

Business investment got off to a weak start at the beginning of the year, according to one closely-watched measure from the Commerce Department. The Commerce Department reported that orders for durable goods rose +1.8% in January, but the gain was due to a spike in orders for commercial and military aircraft. Non-defense capital goods orders excluding aircraft – or “core” capital goods orders – dropped -0.4% in January. Some analysts view the weakness as a sign that businesses are awaiting new policies by the Trump administration before acting; but most aren’t sounding the alarm just yet. Stephen Stanley, chief economist at Amherst Pierpont Securities stated, “My view on business investment remains that there is a good deal of pent-up energy that had been held back by an adverse and uncertain policy environment.”

The service side of the economy that employs the vast majority of Americans expanded last month at its fastest rate in over a year. The Institute for Supply Management’s (ISM) non-manufacturing index rose to 57.6 in February, up +1.1% from January. Sixteen of the eighteen sectors tracked by ISM expanded last month, the highest number since the middle of 2014, according to the survey. In the details of the report, the business activity index rose +3.3 points to 63.6, while the new orders index added +2.6 points to 61.2. Anthony Nieves, chair of ISM said, “Respondents’ comments continue to be mixed, with some uncertainty; however, the majority indicate a positive outlook on business conditions and the overall economy.”

Consumers are the most confident in the U.S. economy in over 15 years, supported by the strongest job market since 2007 and a surging stock market. The Conference Board reported that its survey of consumer confidence rose to 114.8 in February, up +3.2 points from January. The robust job market has lifted the spirits of consumers—the share of respondents who said jobs were “hard to get” fell to an eight-year low of just 20.3%. Millions of Americans have found new jobs since 2010, bringing the unemployment rate down to below 5% and forcing companies to increase wages and benefits. Analysts note that the rise in consumer confidence is particularly notable given the bitter and divisive presidential election. President Trump has promised tax cuts, reductions in regulations, and increased spending for public works. The measure that asks respondents of their expectations for the next 6 months increased +3.1 points to 102.4. Lynn Franco, director of economic indicators at the board remarked, “Overall, consumers expect the economy to continue expanding in the months ahead.”

GDP remained at 1.9% in the fourth quarter of last year—weighed down by a larger trade deficit that offset a surge in consumer-spending. Data from the Commerce Department showed that consumer spending increased +3% in the fourth quarter, 0.5% more than initially reported. Yet the increase was offset by smaller increases in business investment and state and local government spending. As a result GDP was unchanged from its original estimate. In the details of the report, a large portion of the upward revision was due to higher spending on new cars and trucks, which bode well for the economy. Automobile sales typically improve as the economy strengthens. However, the bulk of the increase was due to spending on health care. The rising cost of health care coverage continues to eat into the budgets of U.S. households.

The higher cost of gasoline and other products pushed the level of inflation to its highest level since 2012. The Federal Reserve’s preferred inflation measure, known as the Personal Consumption Expenditures (PCE) price index jumped +0.4% in January. The index is up +1.9% over the last 12 months, matching its highest year-over-year level since October 2012. The rate of inflation is now close to the Fed’s 2% long-term target. A move higher could push the central bank to raise interest rates more aggressively. The rise in inflation over the last year has been mostly correlated with the increase in the cost of oil; however other staples such as healthcare and the cost of rents have also increased. The Core PCE index that strips out the cost of food and energy has been more stable. That index was up +0.3% in January, and has remained between 1.6% and 1.7% over the last 13 months.

In a speech Friday, Federal Reserve Chairwoman Janet Yellen stated that an interest-rate hike at the next policy meeting in less than two weeks is “likely”. In a speech to the Executives’ Club of Chicago, Yellen stated, “At our meeting later this month, the Federal Open Market Committee will evaluate whether employment and inflation are continuing to evolve in line with our expectations, in which case a further adjustment of the Federal funds rate would likely be appropriate.” Yellen’s remarks followed similar comments from other Fed officials. Most notably, New York Fed President William Dudley said on Tuesday that the case for an interest rate increase for March had become a “lot more compelling”. Todd Lowenstein, head of research at HighMark Capital Management remarked, “The market views this as normalization, not a tightening, and as a consequence it will not derail the economy.”

In international news, the Canadian economy gained momentum in the fourth quarter of last year, rising at a +2.6% annualized rate, according to Statistics Canada. In the report, the single biggest driver of GDP growth was the increase of +0.6% in household consumption. But business investment fell for its ninth consecutive quarter, falling -2.1%. The final number was a retreat from the 3.8% annualized rate set the third quarter, following the rebound in the energy industry after the Fort McMurray wildfires. Brian DePratto, senior economist with TD Economics released a note to clients stating “Canadians opened their wallets both at stores and construction offices, delivering a solid fourth-quarter economic performance.”

In the United Kingdom, British Prime Minister Theresa May said there was economic case for breaking up the United Kingdom following remarks by Scottish nationalists pushing for independence. Since last year’s Brexit vote, Scottish National Party leader Nicola Sturgeon has repeatedly said she could push for a new independence referendum if the country is forced into a clean break with the bloc. May told her Conservative Party’s Scottish conference, “The economic case for the union has never been stronger. There is no economic case for breaking up the United Kingdom, or of loosening the ties which bind us together.”

In France, presidential candidate Marine Le Pen laid out a plan envisioning the “protective hand of the state” to guide a reordered economy that punishes companies that fail to serve the interests of the country and rewards those that put France first. In a speech, Le Pen laid out her policies based on “economic patriotism” that would be enacted if she wins the two-round presidential election. The plan includes a tax of 35% for French companies that produce their goods elsewhere and then reimport them. Companies that manufacture products in France would be compensated. She said, “No country has ever succeeded in building its industry without protecting it.”

In Germany, a new report has shown the poverty rate is breaking new records in Germany, even as GDP continues to grow. Several of Germany’s major charities have called for a “rigorous change of course” in the government’s tax and finance policies to fight growing poverty. The poverty rate reached a new record level of 15.7% in 2015, according to a report entitled “Human dignity is a human right” by an alliance of organizations called the Paritatische Gesamtverband. While the charities are calling for better redistribution of wealth, some economists say factors like immigration are likely playing a large role.

China is working on various infrastructure projects around the world in an ambitious desire to be the world’s next economic superpower, at the same time that President Trump is turning his back on globalization. This year, a 300-mile railway will begin transporting people through Kenya from the capital Nairobi to one of East Africa’s largest ports, Mombasa. The formerly 12-hour trip will now take only 4 hours, and it is hoped the train will lead to an economic and tourism revival in the region. China Road and Bridge, a state-owned enterprise, leads the construction of the $13.8 billion project. Trump’s pivot to economic nationalism and disdain of multilateral trade deals creates an opportunity for China, says Louis Kuijs, head of Asia Economics at Oxford Economics, who states, “As the U.S. becomes more insular in economic philosophy, I think it gives China one more reason to say, ‘We are still interested, and we want to continue globalization.’ ”

In Japan, factory output unexpectedly fell -0.8% in January, its first decline in 6 months and the latest in a series of economic concerns for the world’s number three economy. The figure missed economists’ expectations of a +0.4% expansion and came a week after Japan registered its first trade deficit in almost six months. Taro Saito, director of economic research at the NLI Research Institute said, “This is a reminder to be cautious for those who have been upbeat on Japan’s economy.” Although production of electronics expanded the first month of the year, it was offset by a decline in vehicle production.

Finally, here’s a cautionary tale that should remind us that “nothing is forever”. Everyone knows that one of the original smartphone pioneers was Blackberry. In fact, for some time, it was the dominant smartphone. Back in 2011, Blackberry’s handset sales peaked at over 52 million units. But as iPhone and Android sales gained ground, Blackberry’s share of the market slid precipitously. The reasons are myriad, but in short Blackberry devices were surpassed by the hardware and most importantly the apps and software available for the Apple iPhone and Google Android devices. Despite numerous attempts featuring new hardware and software, Blackberry has never been able to regain even a shadow of its former glory. In the final quarter of last year, Blackberry hit a terrible milestone by recording a 0.0% (rounded) market share of the smartphone market, according to research firm Gartner. The chart below, from Gartner and tech research firm Recode, illustrates the steep decline to effectively zero.

clip_image002

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Figs 1-5 source W E Sherman & Co, LLC)

The ranking relationship (shown in Fig. 5) between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market. The average ranking of Defensive SHUT sectors rose sharply to 16.75 from the prior week’s 21.75, while the average ranking of Offensive DIME sectors slipped to 17.50 from the prior week’s 16.75. The Defensive SHUT sectors have overtaken and now lead the Offensive DIME sectors. Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks

clip_image004

clip_image006Fig. 1

Fig. 2

clip_image008

`

Fig. 3

clip_image010

Fig. 4

clip_image012

Fig. 5

How to make sure that the IRA distribution / withdrawal from your IRA won’t be taxed when you roll it over to a new IRA with 60 days

Moving money between two IRA accounts can sometimes be a tricky endeavor, and it is critical that you understand your transfer options to make sure that you don’t cause yourself any unnecessary taxes on whatever it is that you are trying to do.

For most individuals, moving money from one IRA custodian to another IRA custodian occurs when they are switching advisors  or money managers. You might have an IRA at Fidelity, but want to move your account to an IRA at Vanguard, and this process is completed by what is know as a “trustee to trustee” transfer.

The paperwork process to complete this transaction is fairly simple:

  1. Open a new IRA account at the brokerage firm / custodian of your choice
  2. Fill out the Trustee to Trustee IRA transfer paperwork
  3. Your new IRA firm will then submit your signed request to your old IRA company, and your IRA assets will then be transferred over tax free.

For example: 

You have an IRA at Fidelity, and you want to open up a new account with Anthony Capital to take advantage of their FBIAS™ Fact Based Investment Allocation Strategy portfolios that are risk managed. You would open up a new IRA account at the custodian that we use, Interactive Brokers by clicking on THIS LINK, and then request to transfer the account positions over via the Trustee to Trustee transfer process.. Viola! Piece of Cake!

What if you have cashed out your IRA? How do you put the money back in to an IRA and not pay taxes on it?

If you’ve withdrawn monies from your IRA, you have 60 days to put the monies back in another IRA before it will be deemed as Ordinary Income on your 1040 tax return and you’ll be liable for the taxes. To prevent that from happening you’ll need to do the following:

  1. Report the amount of distribution on line 15(a) of Form 1040 as a non taxable distribution.

1040-screen-shot

Because you cashed in your IRA, your old broker/custodian will send you a 1099 form for that tax year and will report this distribution as ordinary income to the IRS. You want to fill out line 15a on your 1040 form to acknowledge that you did take a distribution, but it should not be taxable because you have deposited the monies into a new IRA with in 60 days. As long as you redeposit the entire amount, within 60 days, it won’t be taxable–hooray!

For example–If you took out $100,000 from your IRA, then you’d list $100,000 on Line 15a.

2. Write ROLLOVER next to line 15b to indicate to the IRS that you transferred the money to a new IRA account. You want to make it easy for them to know that you did not spend the money!

3. Make sure that your new IRA custodian reports this $100,000 IRA on the IRS Form 5498

When you deposit money into your new IRA, make sure to tell them the money is coming from another IRA account and that you are doing it within the 60 day rollover window. Your new IRA company will send you and the IRS, Form 5498, IRA Contribution Information, which resembles the Form W-2 that businesses use to report wages to the IRS. The form is used to not only report IRA contributions to the IRS (box 1), but also IRA rollover contributions (box 2) that satisfy the 60 day rollover rule.

form-5498This form is required to be sent to you by May 31st following the year that the contribution was made. Since your tax return form is due April 15th, it is not meant to help you report your contribution/60 day rollover, since the information you provided on your Form 1040 line 15a would have done this, rather it is used to help the IRS make sure that the amount of IRA deductions on the IRA owners’ tax returns matches the trustee reports.

You don’t need to do anything with the form itself, meaning you don’t attach it and send it in with your tax return, but you should keep it for your records and make sure that your new IRA custodian sends it to the IRS.

Hope that helps! Now that you have your money inside of your IRA, you should look at some proactive money management strategies to invest your money, like FBIAS™ Fact Based Investment Allocation Strategies. These is a risk-managed investment process that seeks to profit in bull markets and protect profits in bear markets.

If you have any questions, please reach out to an Anthony Capital, LLC advisor today!

Success!

Dave Anthony, CFP®, RMA®

 

FBIAS™ for the week ending 12/31/2015

FBIAS™ Fact-Based Investment Allocation Strategies for the week ending 12/31/2015

The very big picture:

In the “decades” timeframe, the question of whether we are in a continuing Secular Bear Market that began in 2000 or in a new Secular Bull Market has been the subject of hot debate among economists and market watchers since 2013, when the Dow and S&P 500 exceeded their 2000 and 2007 highs.  The Bear proponents point out that the long-term PE ratio (called “CAPE”, for Cyclically-Adjusted Price to Earnings ratio), which has done a historically great job of marking tops and bottoms of Secular Bulls and Secular Bears, did not get down to the single-digit range that has marked the end of Bear Markets for a hundred years, but the Bull proponents say that significantly higher new highs are de-facto evidence of a Secular Bull, regardless of the CAPE.  Further confusing the question, the CAPE now has risen to levels that have marked the end of Bull Markets except for times of full-blown market manias.  See graph below for the 100-year view of Secular Bulls and Bears.

Even if we are in a new Secular Bull Market, market history says future returns are likely to be modest at best.   The CAPE is at 25.9, down from the prior week’s 26.1, and approximately at the level reached at the pre-crash high in October, 2007.  In fact, since 1881, the average annual returns for all ten year periods that began with a CAPE around this level have been just 3%/yr (see graph below).

This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold.  Although a mania could come along and cause the CAPE to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns more typical of a rip-snorting Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate.  The US Bull-Bear Indicator (see graph below) is at 57.51, down from the prior week’s 57.70, and continues in Cyclical Bull territory.

In the intermediate picture:

The intermediate (weeks to months) indicator (see graph below) turned negative on Friday, December 11.  The indicator ended the week at 19, up from the prior week’s 17.  Separately, the quarter-by-quarter indicator – based on domestic and international stock trend status at the start of each quarter – gave a negative indication on the first day of January for the prospects for the first quarter of 2016.

Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2 above), whether we are in a new Secular Bull or still in the Secular Bear, the long-term valuation of the market is simply too high to sustain rip-roaring multi-year returns.  In the Cyclical (months to years) timeframe (Fig. 3 above), the US is the only major market still firmly in Bull territory.  In the Intermediate (weeks to months) timeframe (Fig. 4 above), US equity markets are rated as Negative.  The quarter-by-quarter indicator gave a negative signal for the 1st quarter:  neither US equities nor ex-US equities were in an uptrend at the start of Q1 2016, sufficient to signal a higher likelihood of a down quarter than an up quarter. 

In the markets:

On Thursday, stocks closed the last trading session of 2015 with losses across the board.  The Dow Jones Industrial Average lost -0.7% on the week, down -2.23% for the year.  The LargeCap S&P 500 retreated 0.83% on the week, and finished the year down -0.73%.  The S&P 400 MidCap index declined -1.24% last week, and was down -3.71% for the year.  The SmallCap Russell 2000 was down -1.63% last week, and was the laggard among US indices for the year, down -5.48%.  The lone major US index to finish up for the year was the Nasdaq, which dropped -0.81% on the week, but was up +5.7% for the year.  Canada’s TSX lost -2.25% on the week, ending a disappointing year that returned -11.09%.

International markets were mixed for the week.  Germany’s DAX was up +0.14%, France’s CAC40 down 0.56%, Italy’s Milan FTSE up +1.7%, and the UK’s FTSE down -0.2%.  In Asia, China’s Shanghai Stock Exchange was down -2.03%, Japan’s Nikkei was up +0.78%, and Hong Kong’s Hang Seng was down 1.01%.

In commodities, precious metals remained under pressure as Gold sold off $15.30 down to $1060.50 an ounce.  Silver was down -3.86% and now under $14 to $13.82 an ounce.  A barrel of West Texas Intermediate crude oil lost a -$1.05 to $37.07 a barrel.

The month of December was a negative one for all U.S. and almost all international stock indices, but nonetheless ended a positive fourth quarter whose gains all came in the month of October.  November was mostly flat, and December negative, but they added up to a decent fourth quarter even though ending with a whimper.  For the year, the Nasdaq Composite was up +5.7%, as noted above.  The rest of the major US and international equity indexes were negative for the year, with the worst being Emerging Markets, finishing the year at -16.2%.  Inside the Emerging Markets group, among the poorest performers was Brazil, at -42% for 2015.  Commodities suffered another poor year, with crude oil down almost 31%, gold -11%, silver -12% and copper (thought by some to be a harbinger of future global economic activity) -24%.

In U.S. economic news, underlying inflation is either (a) rising to historically-normal levels, or (b) not picking up at all—depending on which data series you look at.  The core Consumer Price Index, which removes food and energy prices, increased +0.5% to an annualized 2% last month.  However, looking at the Federal Reserve’s favorite price gauge–core personal consumption expenditures, the divergence is the widest it’s been since 2002.  Core PCE inflation remained unchanged last month, and at 1.3% annualized.  Analysts suggest that as long as the PCE inflation data remains below the 2% Fed target for inflation, policymakers will be cautious hiking rates.

Initial jobless claims rose by 20,000 last week to 287,000, the most since early July—economists had been expecting only 270,000.  The smoothed 4-week moving average rose to a 5-month high of 277,000.  On a positive note, claims remain near a 4-decade low.  The concern in the jobs market has been more about a lack of expansion in hiring through the recovery, rather than people being fired.  According to the Labor Department, the U.S. added about 2.5 million jobs in 2015.  That figure is acceptable, but 2014 had over 3.1 million jobs added.

U.S. home prices rose +5.2% in October versus a year earlier, according to S&P/Case-Schiller data.  It was the fourth straight month of acceleration and the best gain since the summer of 2014.  Portland, San Francisco, and Denver led the rankings with 10.9% advances.  Economic conditions are supportive of housing demand, but limited inventory is leading to higher prices.  But the Commerce Department reported that single-family housing starts rose to an 8-year high last month, so the additional supply is expected to help handle the demand.  Pending home sales fell -0.9% in December, the 3rd drop in the last 4 months.  The National Association of Realtors attributed the fall to higher home prices and the limited supply of homes.  The pending home sales index is up +2.7% versus the previous November, the smallest annual gain since October of 2014.

A surprising drop occurred in the December Chicago Purchasing Managers Index (PMI), which fell deeper into contraction territory, to 42.9 from 48.7 – much worse than the improvement to 50 expected by economists.  The -5.8 point drop was the largest contraction since July 2009.  Worse, order backlogs plunged -17.2 points to 29.4, which was the worst drop in backlogs since 1951.  Nonetheless, 55% of the survey’s respondents reported that they expect strong demand in 2016.

In international economic news, IMF Managing Director Christine Lagarde stated in an article for the German newspaper Handelsblatt that she believes global economic growth will be “disappointing” in 2016.  Higher interest rates in the United States and the continuing economic slowdown in China are contributing to a decline in global trade and weak raw materials prices for commodity-producing nations, she said.

Finally, 2015’s increase in the value of the dollar relative to other global currencies has made a win-or-lose difference in the returns of many popular international investments vehicles.

The vast majority of American investors make their international investments in “unhedged” ETFs and Mutual Funds, where “unhedged” means that there is no attempt to offset (i.e., “hedge”) the effects of the dollar’s ups and downs on the value of the investments. 

The dollar gained value in 2015, causing “unhedged” foreign investments to be negatively affected and frequently made the difference between an annual gain or loss for American investors.  Here are two examples:

iShares MSCI Germany ETF – unhedged (EWG)
vs
WisdomTree Germany Hedged Equity ETF – hedged (DXGE)

and

iShares MSCI EAFE ETF – unhedged (EFA)  (EAFE = Europe, Australia and Far East)
vs
Deutsche X-trackers MSCI EAFE Hedged ETF – hedged (DBEF)

(sources: Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com,  marketwatch.com,  wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com)

The ranking relationship (shown in Fig. 5) between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market.

The average ranking of Defensive SHUT sectors rose to 6.3 from the prior week’s 7.8, while the average ranking of Offensive DIME sectors rose to 16.0 from the prior week’s 17.5.  The Defensive SHUT sectors have maintained their lead over the Offensive DIME sectors.   Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks.

Summary:

The US has led the worldwide recovery, and continues to be among the strongest of global markets.  However, the over-arching Secular Bear Market may remain in place globally even through new highs were reached in the US earlier this year. Because the world may still be in a Secular Bear, we have no expectations of runs of multiple double-digit consecutive years, and we expect poor market conditions to be a frequent occurrence.  Nonetheless, we remain completely open to any eventuality that the market brings, and our strategies, tactics and tools will help us to successfully navigate whatever happens.

If you have any questions about the FBIAS™ Fact-Based Investment Allocation Strategy portfolios, feel free to give your Anthony Capital, LLC advisor a call at 303-734-7178 or by scheduling a private virtual meeting/conference call.  We work with clients from all over the country and would be happy to help.

You can also open up an online account by clicking HERE at our preferred custodian, Folio Institutional.

Sincerely,

Dave Anthony, CFP®, RMA®

FBIAS™ Market Update for the week ending 12-23-2016

The very big picture:

In the “decades” timeframe, the question of whether we are in a continuing Secular Bear Market that began in 2000 or in a new Secular Bull Market has been the subject of hot debate among economists and market watchers since 2013, when the Dow and S&P 500 exceeded their 2000 and 2007 highs. The Bear proponents point out that the long-term PE ratio (called “CAPE”, for Cyclically-Adjusted Price to Earnings ratio), which has done a historically great job of marking tops and bottoms of Secular Bulls and Secular Bears, did not get down to the single-digit range that has marked the end of Bear Markets for a hundred years, but the Bull proponents say that significantly higher new highs are de-facto evidence of a Secular Bull, regardless of the CAPE. Further confusing the question, the CAPE now has risen to levels that have marked the end of Bull Markets except for times of full-blown market manias. See Fig. 1 for the 100-year view of Secular Bulls and Bears.

clip_image002

Even if we are in a new Secular Bull Market, market history says future returns are likely to be modest at best. The CAPE is at 27.99, up from the prior week’s 27.92, and now exceeding the level reached at the pre-crash high in October, 2007. Since 1881, the average annual return for all ten year periods that began with a CAPE around this level have been just 3%/yr (see Fig. 2).

clip_image002[6]

This further means that above-average returns will be much more likely to come from the active management of portfolios than from passive buy-and-hold. Although a mania could come along and cause the CAPE to shoot upward from current levels (such as happened in the late 1920’s and the late 1990’s), in the absence of such a mania, buy-and-hold investors will likely have a long wait until the arrival of returns more typical of a rip-snorting Secular Bull Market.

In the big picture:

The “big picture” is the months-to-years timeframe – the timeframe in which Cyclical Bulls and Bears operate. The U.S. Bull-Bear Indicator (see Fig. 3) is in Cyclical Bull territory at 62.01, up from the prior week’s 60.94.

clip_image002[8]

In the intermediate picture:

The Intermediate (weeks to months) Indicator (see Fig. 4) turned positive on November 10th. The indicator ended the week at 29, unchanged from the prior week. Separately, the Quarterly Trend Indicator – based on domestic and international stock trend status at the start of each quarter – was positive entering October, indicating positive prospects for equities in the fourth quarter of 2016.

clip_image002[10]

Timeframe summary:

In the Secular (years to decades) timeframe (Figs. 1 & 2), whether we are in a new Secular Bull or still in the Secular Bear, the long-term valuation of the market is simply too high to sustain rip-roaring multi-year returns. The Bull-Bear Indicator (months to years) is positive (Fig. 3), indicating a potential uptrend in the longer timeframe. The Quarterly Trend Indicator (months to quarters) is positive for Q4, and the Intermediate (weeks to months) timeframe (Fig. 4) is positive. Therefore, with all three indicators positive, the U.S. equity markets are rated as Very Positive.

In the markets:

After a strong start, the major equity indexes drifted lower and ended the week only marginally higher. The Dow Jones Industrial Average rose for a 7th straight week, adding +90 points to close at 19933. The Dow is inching closer to the psychologically-significant 20,000 level, up +0.46% for the week. The LargeCap S&P 500 edged higher by +0.25%, while the S&P 400 MidCap and Russell 2000 SmallCap indexes rose +0.35% and +0.52% respectively, continuing their 2016 outperformance relative to the LargeCaps.

In international markets, Canada’s TSX advanced +0.5%. Across the Atlantic, the United Kingdom’s FTSE rose for a third consecutive week, gaining +0.8%. On Europe’s mainland, France’s CAC 40 added +0.13%, Germany’s DAX gained +0.4%, and Italy’s Milan FTSE rose a fifth straight week, up 1.74%. In Asia, a mixed bag: Japan’s Nikkei had its seventh consecutive week of gains, rising +0.14%, China’s Shanghai Composite suffered a fourth straight week of losses losing -0.4%, and Hong Kong’s Hang Seng fell -2%. As a group, developed markets (as measured by the MSCI Developed Markets Index) rose +0.25%, while emerging markets (as measured by the MSCI Emerging Markets Index) fell -1.36%.

In commodities, precious metals are still searching for a bottom as Gold fell another -$3.80 an ounce to $1,133.60, and Silver caught up to Gold’s weakness losing -2.8% to end the week at $15.76 an ounce. Oil was basically flat, rising +$0.07 to $53.02 a barrel for West Texas Intermediate crude. Coincident with the rebound in oil prices, the number of U.S. previously-idled oil rigs going back into production surged to its highest level since January.

In U.S. economic news, the Labor Department reported that the number of newly unemployed jumped to the highest level since early summer. Initial jobless claims rose a seasonally-adjusted 21,000 to 275,000, a 6-month high. However, it also marks the 94th consecutive week of initial claims below 300,000—a threshold many analysts use as the sign of a healthy job market. Continuing jobless claims, the number of unemployed already receiving benefits, fell by almost 79,000 to 2.04 million.

Sales of previously owned U.S. homes rose +0.7% last month to an annual pace of 5.61 million, according to the National Association of Realtors (NAR). Analysts noted that higher prices and lean inventories continue to weigh on the housing market. NAR Chief Economist Lawrence Yun noted the “big obstacle is the ongoing housing shortage”. At the current pace of sales, there is a just a 4 month supply of homes on the market, compared to the more-desirable 6 month supply. The shortage of homes is pushing prices up: the median home price across the country is $234,900, an increase of +6.8% over November of last year. Sales were mixed regionally. In the Northeast, sales increased +8% accompanying a +1.4% gain in the South. The Midwest and West both declined, ‑2.2% and -1.6% respectively. First-time buyers made up 32% of all purchases last month.

Sales of new homes jumped last month to its second-highest pace since early 2008, another sign of robust housing demand. The Commerce Department reported that sales ran at a 592,000 seasonally-adjusted annual rate, up +5.2% from October and up +16.5% from this time last year. The median sales price was $305,400 in November, up $2,700 from October. The stronger sales continued to deplete the supply of new homes for sale, with 5.1 months’ worth of new homes available for sale last month, down from 5.4 months a year ago.

U.S. Consumer spending slowed in November after several months of gains as income growth flattened. Personal incomes were unchanged and spending rose +0.2%, according to the Commerce Department. Inflation also remained unchanged. The personal consumption expenditures (PCE) index rose +1.4% compared to this time last year. The PCE price index is the favored inflation gauge of the Federal Reserve. Ex-food and energy, the index is up +1.6% – a retreat from the +1.8% annual increase in October and a step further away from the Fed’s 2% target.

Confidence among consumers continued the surge following the election of Donald Trump to President, hitting its highest level in 12 years. The University of Michigan’s Consumer Sentiment index rose to 98.2, up a steep 5 points from November. The index is now at its highest level since January of 2004. Survey respondents stated that they expected a stronger economy that would create more jobs. Blerina Uruci, economist at Barclay’s, stated “Ongoing solid readings of consumer confidence reinforce our view that GDP growth should remain firm in the near term, and we see the level of confidence as consistent with ongoing strength in consumer spending.”

Orders for long-lasting “durable” goods fell last month for the first time in five months. Orders for durable goods fell -4.6% last month, led by a drop in orders for Boeing aircraft. The drop almost completely retraces the +4.8% increase in October. In an unusual twist, the details of the report were actually more optimistic than the headline. Ex-transportation (i.e., remove Boeing), orders for durable goods were up over +0.5%, the fifth straight monthly gain. Citi economists released a note stating “Core orders are a particularly important series to follow over the next few months as we try to discern whether investment spending is picking up in post-election data. Today’s number implies that at the very least equipment investment did not decline and may be a first hint that it is on a more favorable trajectory.”

Factory production weakened last month, according to the Chicago Federal Reserve. The Chicago Fed’s National Activity Index fell to -0.27 last month, down -0.22 from October. The index is a weighted average of 85 economic indicators, designed so that readings above zero indicate trend growth. Production-related indicators decreased to -0.2 in November falling from -0.01, reflecting weakness in the nation’s manufacturing sector. Steven Shields, economist with Moody’s wrote, “A reading of -0.27 still suggests the U.S. economy expanded at a below-average rate and is easing its foot off the accelerator after a stronger performance in early summer.”

The overall U.S. economy grew at a faster pace than originally thought in the 3rd quarter, according to the Commerce Department. Upward revisions in consumer spending and business investment pushed the latest GDP estimate up +0.3%, to a healthy 3.5% annualized rate. In addition, strong trade data in the form of a +10% spike in exports also contributed. Michael Gapen, chief U.S. economist at Barclay’s noted that the data signaled “the manufacturing, trade, and energy sectors stabilized during the quarter after nearly two years of contraction.”

In Canada, the steep rise of home prices has reached a level such that the Bank of Canada made the remarkable move of taking its warning of high household debt levels and red-hot home prices online in a most modern way: a video posted on YouTube. The Bank of Canada has voiced its concerns to Canadians for months, but it appears to have fallen on deaf ears. For example, Toronto home prices are up nearly +15% since this summer when Bank of Canada governor Stephen Poloz warned that price gains were “difficult to match up with any definition of fundamentals that you could point to.” In addition, Statistics Canada showed that the household debt-to-income ratio broke yet another record last quarter, further increasing the Bank of Canada’s unease.

In France, International Monetary Fund chief Christine Lagarde was found guilty of criminal negligence for an improper government payout to French businessman Bernard Tapie eight years ago while she served as France’s finance minister. The French court chose not to sentence Lagarde to a fine or jail time. In a statement Monday, Lagarde said she was not satisfied with the court’s decision but had chosen not to appeal.

In Germany, the Finance Ministry predicted that German economic activity will be shown to have picked up in the fourth quarter as household spending remains strong and exports are likely to show improvement. “For the final quarter, indicators are signaling a light acceleration in overall economic activity,” the Finance Ministry said in its monthly report.

The Italian government agreed to bail out the world’s oldest bank, Monte dei Paschi di Siena, after the bank failed to raise five billion euros from private investors. Paolo Gentiloni, Italy’s new prime minister said that the government would tap a 20 billion euro fund that had already been approved by the parliament earlier this week. In an effort to curb losses for Italy’s small investors that hold bank notes, finance minister Pier Carlo Padoan said the government would compensate small savers for their bank losses. Small investors are estimated to hold roughly 2 billion euros worth of Monte dei Paschi’s bonds.

The Bank of Japan is more optimistic about the Japanese economy, raising its assessment for the first time since May 2015. The BOJ’s more optimistic tone came as the government released its growth forecast for the coming year. The government now sees the economy picking up speed to a 1.5% growth rate, from the prior 1.3%. In a move widely expected, the BOJ kept its short-term rate target at -0.1% and its 10-year Japanese government bond yield at near zero. It also said it would continue to buy Japanese government bonds at the previous pace of around 80 trillion yen a year.

clip_image002

Finally, for more and more of us, online shopping has become the new normal. The primary beneficiary of this trend has been Amazon. Market research firm Slice Intelligence looked at 1.7 million online shopping receipts from early November to mid-December and discovered that the leader in online purchases is far-and-away Amazon, with a 36.9% share of the online market. No one else is even close. The next four are brick-and-mortar retailers with major online operations, but their combined market share adds up to only 12%. (Chart from CNBC)

(sources: all index return data from Yahoo Finance; Reuters, Barron’s, Wall St Journal, Bloomberg.com, ft.com, guggenheimpartners.com, ritholtz.com, markit.com, financialpost.com, Eurostat, Statistics Canada, Yahoo! Finance, stocksandnews.com, marketwatch.com, wantchinatimes.com, BBC, 361capital.com, pensionpartners.com, cnbc.com, FactSet; Figs 1-5 source W E Sherman & Co, LLC)

The ranking relationship (shown in Fig. 5) between the defensive SHUT sectors (“S”=Staples [a.k.a. consumer non-cyclical], “H”=Healthcare, “U”=Utilities and “T”=Telecom) and the offensive DIME sectors (“D”=Discretionary [a.k.a. Consumer Cyclical], “I”=Industrial, “M”=Materials, “E”=Energy), is one way to gauge institutional investor sentiment in the market. The average ranking of Defensive SHUT sectors rose to 21.25 from 22.25, while the average ranking of Offensive DIME sectors slipped to 11.75 from 11.25. The Offensive DIME sectors continue to strongly lead Defensive SHUT sectors. Note: these are “ranks”, not “scores”, so smaller numbers are higher ranks and larger numbers are lower ranks.

clip_image002[12]

If you have any questions about the FBIAS™ Fact-Based Investment Allocation Strategy portfolios, feel free to give your Anthony Capital, LLC advisor a call at 303-734-7178 or by scheduling a private virtual meeting/conference call. We work with clients from all over the country and would be happy to help.

You can also open up an online account by clicking HERE  at our preferred custodian, Interactive Brokers, LLC.

Sincerely,

Dave Anthony, CFP®

 

`