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This blog contains general information that is not suitable for everyone.  The information contained herein should not be construed as personalized investment advice.  Past performance is no guarantee of future results.  There is no guarantee that the views and opinions expressed in this blog will come to pass.  Investing in the stock market involves gains and the potential for losses, and may not be suitable for all investors.  Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

Portfolio Update

Today we are investing another approximate third of our equity allocation.  As you will recall we invested our large cap and international allocation last month.  Today’s investment will begin to fill up the mid-cap and small-cap allocation.  The mid and small areas of the market have underperformed the large area of the market recently and we believe this is a good entry point for the mid and small areas. 

As you will further recall, we are using mutual funds and believe we have a very strong line up of active managers that have historically produced significant out performance.  The mutual funds you will see being added to your account are:

  • Thrivent Mid Cap Stock Fund Class S (TMSIX)
  • Columbia Small Cap Value Fund I (CUURX)
  • Federated MDT Small Cap Core Fund Institutional Class (QISCX)
  • Federated Kaufmann Small Cap Fund Institutional Shares (FKAIX)

These funds represent some of the best of their respective peer groups and we believe this particular portfolio of funds should outperform.

When we add the last third of the equity allocation to the portfolio’s we will add to these positions and rebalance the entire portfolio.

We hope you all have a great Holy week next week.  Should you have any questions please feel free to contact us.


Portfolio Update 

As we are sure you are aware, our long-term indicators for the equity markets turned negative back in December.  As a result, we sold the equity positions in all the portfolios and have held those proceeds in all accounts in a money market fund earning a modest return.  As of Friday, we now have a confirmed cross to the positive of our long-term indicator in the equity markets.


We will be buying the equity portfolio in all portfolios that contain equities over the next few weeks.  We are very pleased with the portfolio we have put together.   The equity allocation contains all mutual funds for the first time in the last few years.  We believe there has been a shift in equity management from passive (ETF’s) management to active (Mutual Fund) management.   In a recent paper published by Morgan Stanley[i]:

“Quantitative Easing and secular stagnation provide a unique set of tailwinds (low volatility, tepid growth, and high correlations) for indexing and passive management, that after seven years now appear poised to fade.”

This Morgan Stanley report went on to say,

“we are in the early innings of a major regime shift in markets driven by the hand-off from monetary to fiscal policy and from deflation to inflation.  These features strongly favor active managers ….” 

While we tend to believe the general sentiment that there has been a shift from passive investment management to more active investment management, we had to prove it to ourselves.   We asked Morningstar to tell us how our new equity mutual fund line-up has performed over the past 10 years.  Specifically, we measured this new mutual fund line-up against the benchmarks (which are similar to an ETF performance) over the last 1 year, 3-year, 5 year and 10-year periods.  In every time period our new equity mutual fund lineup out-performed the benchmarks by more than 2% per year.  The strongest outperformance was the 3-year period where the new lineup outperformed the benchmarks by almost 6% per year[ii].

This new equity fund allocation represents a very diversified group of six different funds.  These funds will mean that the equity portion of our portfolio has exposure in every area of the market, including international.   Once this portfolio is in place in the model portfolios, we will continue to monitor the performance of each fund as it relates to its peer group and make changes as necessary.

Today we are buying the large cap and international portion of the portfolio.  This allocation will represent approximately 36% of the overall equity allocation.  The mid and small cap portions of the portfolio will be added as additional indicators tell us it is time to put that portion of the portfolio to work. 

As always, if you have any questions or comments please do not hesitate to contact us.


[i] Morgan Stanley Client Conversation & Primers; When to Invest in Active vs. Passive, page 2 paragraph 3


[ii] Morningstar Portfolio Snapshot – TTAP Aggressive Growth based on Portfolio Value of $1,000,000


Portfolio Update 

We hope your 2019 is off to a great start!  We wanted to give you all an update on the equities in your accounts.   As you know, we sold all equities on December 21, 2018 when our long-term indicator turned negative for the first time since January 11, 2016.  This is only the sixth time in the last 20 years that this indicator has turned negative.   This 20 year period is illustrated in the following chart:


As you know, our buy/sell discipline requires that we sell equities when this indicator turns negative and purchase equities when this indicator turns positive.  Below is a chart showing the current position of the indicator.  As you will see in that chart, our indicator remains firmly negative.

As you will notice from the above referenced chart, the first three weeks after the equities were sold have been positive for equities.  However, based on the very light volume for those three weeks and other factors, we believe these short term gains appear to be a relatively simple, straight forward, bear market rally.  A 50% retracement of such steep losses is common.   Upon completion of this retracement towards the upside we anticipate the down trend to continue.   Market action the last few days may be confirming this assumption.

The market seems to be very interested in the government shutdown and how long it will last.  This is now the longest government shut down in history and the effects will begin to be felt in the overall economy.  Economists from J.P. Morgan and Bank of America Merrill Lynch said shutdowns typically result in temporary hit of 0.1 to 0.2 percentage points to GDP for each week they continue.  Credit rating agency Fitch said the U.S. AAA rating is at risk if the government shutdown continues.[i]

All the proceeds from the sale of equities have been placed in a money market fund.   This fund is currently yielding approximately 2.08%.  Should the equity market deteriorate further, we may consider moving these funds into a high quality bond fund.  We will certainly let you know prior to making this change.

Should you have any questions or comments please do not hesitate to contact us. 





Portfolio Update 

Our 10/50 indicator has crossed and confirmed negative today. 

As we mentioned in our Market Update on Dec 7th, our investment discipline provides an exit-strategy when an objective indication of a trend-change occurs.  Note our 10/50 chart below.


Simply put, the average weekly price of the S&P500 over the past 10 weeks is now worse than the last 50 weeks.  We identify this as our trigger to exit equities until volatility subsides and a positive momentum is reestablished.

In this century, the 10/50 has confirmed negative only five times before today.  On two of those occasions, the market suffered crashes: the tech bubble and subsequent attacks of 2000-2001, and the financial crisis of 2007-2008.  On the other three occasions, the market endured only a short season of volatility, then got back on track.  We believe this trigger provides an objective exit that is appropriate given recent history and negative possibilities.

Today we begin processing trades to exit equities until the trend reverts and confirms back positive.  The S&P500 is down 16.9% from its highs, but only down 8.9% for the year.  Our indicator has triggered an objective “stop” that we feel is suitable.  But whether the market moves further downward remains to be seen.  For now, we remain on the sidelines until volatility subsides and positive price-action is restored.

As the equities are sold in your account we will have the proceeds put into a money market account held in your Fidelity account.  Today that money market is earning approximately 1.9%.  If this market down turn continues and begins to appear to be a more severe correction we may, at some point, move these positions from money market to appropriate bonds.  But for now, we will have the funds in a money market.   


Market Update

The fourth quarter of 2018 continues to be a volatile season for the markets.  Since this has been such an ‘interesting’ week, we wanted to give you a brief update on current issues we are monitoring as it pertains to both equities and fixed income.

 It’s difficult to identify a singular cause for recent volatility. 

Many pundits point to fears over a trade war with China, as President Trump and Chinese President Xi are set to square off over a potential long-term trade agreement.  President Trump has threatened more tariffs if a trade deal cannot be reached.  The markets have reacted as if it believes him.  The question is whether Xi believes him.[1]

Today, a weaker-than-expected jobs report was released.  November saw 155,000 jobs created, a figure that fell well below economists’ estimates of 190,000.  However, the unemployment rate remained at a relatively healthy 3.7%.[2]

The Federal Reserve will conduct their December meetings on the 17th and 18th.  Recent signals suggest there is a high likelihood they will raise the Federal Funds Rate another .25%, holding fast to their strategy to ‘normalize’ interest rates.  As interest rates increase, bonds suffer, especially those with longer durations.  This is why we target bond positions with comparatively shorter durations in this current environment.  As rates rise, cost of capital also increases, which ultimately drags corporate earnings downward.  Many project that given recent economic fears, the Fed’s rising-rate tactics may cool in 2019.[3]

And then there are those who simply believe a correction has been long overdue.  2017 was a record year for low volatility.  Of the 56 lowest closing levels in the history of the VIX (which measures volatility), 47 of them occurred in 2017[4].  Last year was a historically smooth ride.  Many believe a rough 2018 was bound to happen.

And there is no doubt 2018 has been volatile.  Interestingly, only 5 calendar years in the last 70 years have seen US Stocks and Bonds have returns BOTH below 4%.  If the year ended today, 2018 would be the 6th. 5

Side note: the year following each of those 5 years saw positive returns in both stocks and bonds, the average being a double-digit-plus increase in stock prices.  Whether 2019 provides a similar bounce-back remains to be seen. 5

As our investors know, we invest according to price momentum.  One tenant of our investment philosophy is to ‘move to the sidelines’ when appropriate.  We utilize our 10/50 Weekly indicator to provide an objective exit and re-entrance strategy.  Note the S&P 500 chart below: 

You’ll note that the 10 Week Price Average price (green line) is getting very close to crossing below the 50 Week Price Average (the red line).  Should this happen, and if a cross-down confirms the following week, we will exit our equity positions until a positive long-term trend reestablishes.  We will let you know if an exit occurs.

If you have any questions about this strategy, please do not hesitate to contact us.  We would love to tell you more about our investment philosophy, and why we believe in it.  We can also discuss alternative investments that are not directly correlated to stock market prices which might be suitable for a portion of certain investor’s portfolios.

We hope you enjoy a great weekend and a blessed Christmas Season.






5 Morningstar as of 12/4/18. Stock market represented by S&P 500. Past performance does not guarantee or indicate future results.  Stocks represented by the IA US Large Cap TR Index and US Bonds by the IA US IT Gov Bond Tr Index.