September 18, 2017

The Markets

“In theory, there is no difference between theory and practice, in practice there is.”

Yogi Berra was talking about baseball, but the concept also applies to diversification, according to the GMO White Paper, The S&P 500: Just Say No. From the title, you might think the authors – Matt Kadnar and James Montier – don’t like U.S. stocks. They do:

“Being a U.S. equity investor over the past several years has felt glorious. The S&P 500 has trounced the competition provided by other major developed and emerging equity markets. Over the last 7 years, the S&P is up 173 percent (15 percent annualized in nominal terms) versus MSCI EAFE (in USD terms), which is up 71 percent (8 percent annualized), and poor MSCI Emerging, which is up only 30 percent (4 percent annualized). Every dollar invested in the S&P has compounded into $2.72 versus MSCI EAFE’s $1.70 and MSCI Emerging’s $1.30.”

The authors’ concern is U.S. markets have performed so well, investors may be tempted to abandon diversification and concentrate their portfolios in indexed U.S. stocks. Kadnar and Montier wrote, “Human nature is to extrapolate the recent past. It is easy to see, given the strong performance of U.S. equities in both absolute and relative terms, why many are suggesting they are the only asset you need to own.”

Focusing assets in the United States, according to GMO, ignores the most important determinant of long-term returns: valuation. “From our perspective, one has to make some fairly heroic assumptions to believe that the S&P is even remotely close to fair value.”

High valuations haven’t dulled the appeal of U.S. stocks for investors, though. Last week, the S&P 500 closed at a record high, and the Dow Jones Industrial Average posted its biggest gain since last December, reported CNBC.com.

 

GPS STRATEGIES: Wood? Timber?  Yes, we are adding to many models with wood and timber investments.  With the unfortunate events in the south from the hurricanes there will be significant rebuilding.  Not only are we adding to wood and timber, we are considering adding to consumer specific investments that will need to be purchased for the massive rebuilding. 

We still feel the market is overvalued though the economic and financial landscape seems poised to potentially keep the bull market going.  Defensively, we are monitoring the markets daily though we keep holding an even weighted equity percentage for each client’s risk tolerance.  Achieving client goals is our number one priority.

Our trend following strategy (in the market, out or short the market) remains fully invested.  We did recently get out of half of the positions in stocks only to get back to 100% invested when the market softened 2 weeks ago and then grudged higher.  More information on the trend of the market is below.  We also have had huge successes in many models in infrastructure, Aerospace and defense, international and emerging stocks as well as flexible bond managers.  Our hedge via a volatility fund hasn’t performed well and with the current environment remaining stable we are removing that. 


MARKET TRENDS:
1. The major trend of the stock market was (and still is) bullish

  1. There is a larger than average number of reasons why a significant decline in the stock market in the very near future should come as a surprise to no one. We have stop-losses in place to protect profits.
  2. The proper course of action (in my mind): stay with the bullish trend but locate the nearest exit “just in case.” Our trend following algorithm should help us identify a selling opportunity.

Figure 1 displays four major market averages.  3 of the 4 have broken out to even higher new all-time highs (the only one of these that has not so far is the Russell 2000 small cap index).

All four of these indexes are above their 200-day moving average and 3 of the 4 recently hit new all-time highs.  This is essentially the very definition of a “bull market.”  In fact, one of the worst actions an investor can take is to look at new all-time highs, pronounce “this is the top” and sell everything.  It’s not that this approach can’t work out.  It just seldom ever does.  And it does take a certain degree of hubris as it is tantamount to “telling the market what it’s supposed to do.” Figure 1 – Major Average pushing higher (Courtesy AIQ TradingExpert)

On the Cautionary Side

On the flipside, Figure 2 displays my 4 market “bellwethers”. Recently, all 4 were flashing a warning signal.  Late last week however, the electronics sector (represented here by ticker SMH) broke out to a new high so cannot presently be categorized as “bearish.” Figure 2 – Market Bellwethers (Courtesy AIQ TradingExpert)

A close eye should currently be kept on the Dow Transports and ticker XIV.  If these continue higher and pierce their recent highs the stock market may well be “off to the races” again.  If not, well, you get the idea.

 

7 steps to protect yourself after the equifax breach. From May through July, hackers exploited a website vulnerability at Equifax, one of the major consumer credit reporting agencies. If you have a credit report, there is a chance your sensitive and personal information including Social Security numbers, birth dates, addresses, and driver’s license numbers, may have fallen into the wrong hands. The stolen information could be used in tandem with passwords taken from other databases to commit financial crimes against you, reported a source cited by Consumer Reports.

Here are seven steps to take to help protect your assets and credit:

 

  1. Find out if you were affected. From a secure computer or encrypted network connection, go to the Equifax website, equifaxsecurity2017.com. Scroll down and click on ‘Potential Impact.’ You will be asked to provide your last name and the last six digits of your Social Security number.

 

  1. Enroll in TrustedID Premier. If your data has been breached, Equifax will offer enrollment in TrustedID Premier. The program provides up to $1 million in ID theft insurance, Social Security Number Scanning, 3-bureau credit file monitoring, and the option to freeze your Equifax credit report.

 

  1. Place a fraud alert or credit freeze on your other credit reports. Experian, TransUnion, and Innovis also provide credit reporting services. Contact each of the companies to place an alert or a freeze on your credit report:

 

  • A fraud alert warns both current and prospective lenders they must take reasonable steps to verify your identity before providing credit. When you’re a victim of ID theft, an alert can be put in place for up to seven years.

 

  • A credit freeze is different. It restricts access to your credit report. If you request a freeze, the credit agency will send a letter with a personal ID number (PIN). Keep the PIN in a safe place. You’ll need it to unfreeze your accounts, according to the Federal Trade Commission.

 

  1. Change your passwords. Create new passwords for online banking, brokerage, and financial accounts. Each account should have a unique password. Best practices suggest passwords have 12 to 14 characters.

 

You may want to consider using a password management application. They’re designed to store and retrieve passwords so you can keep track of multiple long, unique password combinations without security issues like storing passwords improperly or failing to remember them.

 

  1. Activate two-factor authentication. Two-factor authentication provides an additional layer of security for email and other accounts. After you enter your user ID and password, you’ll be asked for a code to verify your identity. You can have the account provider text a code to your phone, although that creates vulnerability if your phone is stolen. A better option may be to download an authenticator app so you can generate your own code.

 

  1. Beware email links. Some fraud attempts are obvious: text or email from a Nigerian prince or an update request from a financial institution where you don’t have an account. Others may be more difficult to spot. As a rule of thumb, if you receive an email with a link requesting you update or make changes to a financial account, don’t click on it. Call the financial institution or go directly to its website to make any changes.

 

  1. Keep an eye on your accounts. Check bank, brokerage, and other financial statements for suspicious transactions. If you find unauthorized activity, report it to the institution and the proper authorities.

 

If you have any questions or concerns about this breach or the markets, please contact us.


Weekly Focus – Think About It

“The most effective way to do it, is to do it.”

--Amelia Earhart, American aviation pioneer

 

Best regards,

The Jim Goodland Team at GPS

 

P.S.  Please feel free to forward this commentary to family, friends, or colleagues. If you would like us to add them to the list, please reply to this email with their email address and we will ask for their permission to be added.

 

* Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.  However, the value of fund shares is not guaranteed and will fluctuate.

* Corporate bonds are considered higher risk than government bonds but normally offer a higher yield and are subject to market, interest rate and credit risk as well as additional risks based on the quality of issuer coupon rate, price, yield, maturity, and redemption features.

* The Standard & Poor's 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. You cannot invest directly in this index.

* All indices referenced are unmanaged. Unmanaged index returns do not reflect fees, expenses, or sales charges. Index performance is not indicative of the performance of any investment.

* The Dow Jones Global ex-U.S. Index covers approximately 95% of the market capitalization of the 45 developed and emerging countries included in the Index.

* The 10-year Treasury Note represents debt owed by the United States Treasury to the public. Since the U.S. Government is seen as a risk-free borrower, investors use the 10-year Treasury Note as a benchmark for the long-term bond market.

* Gold represents the afternoon gold price as reported by the London Bullion Market Association. The gold price is set twice daily by the London Gold Fixing Company at 10:30 and 15:00 and is expressed in U.S. dollars per fine troy ounce.

* The Bloomberg Commodity Index is designed to be a highly liquid and diversified benchmark for the commodity futures market. The Index is composed of futures contracts on 19 physical commodities and was launched on July 14, 1998.

* The DJ Equity All REIT Total Return Index measures the total return performance of the equity subcategory of the Real Estate Investment Trust (REIT) industry as calculated by Dow Jones.

* Yahoo! Finance is the source for any reference to the performance of an index between two specific periods.

* Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

* Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.

* Past performance does not guarantee future results. Investing involves risk, including loss of principal.

* You cannot invest directly in an index.

* Consult your financial professional before making any investment decision.

* Stock investing involves risk including loss of principal.

Sources:

https://www.brainyquote.com/quotes/quotes/y/yogiberra141506.html

https://www.gmo.com/docs/default-source/research-and-commentary/strategies/asset-allocation/the-s-p-500-just-say-no.pdf?sfvrsn=7 (Pages 4 and 8)

https://insight.factset.com/hubfs/Resources%20Section/Research%20Desk/Earnings%20Insight/EarningsInsight_091517.pdf

https://www.cnbc.com/2017/09/15/us-stocks-weekly-gains-fed-retail.html

https://www.consumer.ftc.gov/blog/2017/09/equifax-data-breach-what-do

https://www.equifaxsecurity2017.com/potential-impact/

https://www.consumerreports.org/equifax/how-to-lock-down-your-money-after-the-equifax-breach/

https://www.consumer.ftc.gov/articles/0497-credit-freeze-faqs

https://support.norton.com/sp/en/us/home/current/solutions/v121052439_EndUserProfile_en_us

https://www.pcworld.com/article/3056827/security/4-password-managers-that-make-online-security-effortless.html

http://stylecaster.com/beauty/strong-women-quotes/

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Spire Wealth Management, LLC), or any non-investment related content, made reference to directly or indirectly in this commentary will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.

Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized investment advice from Spire Wealth Management, LLC. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Spire Wealth Management, LLC is neither a law firm nor a certified public accounting firm and no portion of the website content should be construed as legal or accounting advice. A copy of the Spire Wealth Management, LLC’s current written disclosure statement discussing our advisory services and fees is available upon request.