Market Climate and Weather Forecast

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Market Climate and Weather Forecast. "It is not the strongest of the species that survives, nor the most intelligent, but the ones most adaptable to change." Charles Darwin. Presented by Herb Geissler, Managing Director of The St.Clair Group - PowerPoint PPT Presentation


  • Market Climateand Weather ForecastPresented by Herb Geissler, Managing Director of The St.Clair GroupRational Investing/VectorVest Special Interest Group of Pittsburgh AAIIAAIIMay, 2012"It is not the strongest of the species that survives, nor the most intelligent, but the ones most adaptable to change." Charles Darwin

  • Two Time FramesSecular Overview to determine best broad investing strategies over yearsCyclical Climate over next year or so for specific strategies to get good gains

  • Simple Buy & Hold Not Likely to Be Productivefor the next dozen yearsKuznets Infrastructure cycle averages 17.6 years for each bull or bear phaseTen-fold, 15-20 yearBig Bull Market15-20 yearConsolidating Bear Market

  • Demographics Dictate DestinyAbout 2/3 through to trough-bottom in 2015

  • Corporate Profits Generally Track Growth in GDPAlthough Exogenous Events can put a thumb on the scaleOil CrisisAsian CrisisCredit Crunch

  • And the Stock Market also Tracks Growth in GDP

  • Consumptive Spending leaves little over for future users or for economic growthPrivate Consumption Demand, plusGross Fixed Investment Spending, plusGovernment Consumptive Spending (all levels)Plus/minus exports and imports

    Gross Domestic Product consists of:

  • US Government SpendingSqueezes Private Sector Growth and Consumer SpendingS&P 500

  • Financed WithOther Peoples Money

  • Chrushing Consumers, while neglecting growth priorities

  • Economy in Troublewith Housing in the Pits

  • Economic Growth Driven by Permanent Investments

    Latest Readings4Q/11 +2.8%3Q/11 +15.7%

  • GDP Stagnates During Next Several Years

  • Huge Surge in Unemployed13 millionUnemployed

  • Massive Structural Unemployment9% jobless rate actually closer to 20%Low-cost countries displaced US workersTechnology is obsoleting many jobsUSPS cut 110,000 jobs in past 4 years and must cut 220,000 more from 572,000 in next 5 yearsAusterity requires doing more with lessEducation systems are geared to yesterdaySiemans US 70,000 employees plus 3,000 openSpiral: less income means less demand

  • Secular Challengesduring this coming decadeIncreasing structural unemploymentDeclining GDP means less output and fewer jobsMassive global debt requires austerity and write-offsGlobal politicians unwilling to resolve problems, kicking can down roadLacking confidence in political leaders, both industry and consumers retrench

  • To Correct Economic Malaise and Structural UnemploymentPay-down U.S. debt to sustainable level through austerity first and then economic growthSlicing is less painful than slivering over several yearsCreate 15 million new jobs (10% more than today) Not just service jobs in retailing, distribution and financeNeed jobs producing technology products that provide more goods and services from less resources to enhance standard of living

  • Secular Strategic Game Plan for Investing in this DecadeReplace Buy&Hold of index or stocks with disciplined tactical allocation (select the few best asset-class ETFs or stocks) and Use Dynamic Asset Allocation (market timing) to switch from yesterdays heroes to strongest horses

    IVY tactical and dynamic allocation strategies require just a few minutes every month for above-average returns and below-average drawdown (spreadsheet discs available)

  • Cyclical ClimateExamine forces that shape economic growth over the next year or twoIdentify a few indicators that measure where we are and where were headedDetermine investing strategies and tactics to match these conditions

  • Cyclical ClimateNew Political Agendas and Administrations globallythrough 2013Still in churning phase of Kuznets cycleEurope is sick with sovereign debt, US healing slowly from debt crisis and is improving manufacturing efficiencies with fewer workers emerging markets coping with demand shrinkage from their major markets in developed countriesThen why has US stock market been so strong?

  • Recent Market Surges WereFueled by Fed Stimulus Liquidity

  • ISMs (PMIs) Confirm Direction of Stock MarketMarket rises when ISM is above 50, except right after 9/11/20019/11NAPM = 54.8NMBA = 53.5 in April 12

  • For 40 years, ECRIs WLI Called every major SP500 DropThe leading economic indicator (LEI), published by Economic Cycle Research Institute, is a weighted average of ten different economic and financial indicators. Above 50 is expansion, below 50 is contractionGrowth in WLI since January 12 is now weakeningand WLI (absolute) is barely above 50 and remains below par

  • Consumer ConfidenceStruggling to Reach Prior LowsConsumer confidence still close to the worst during Normal periods

  • Small Business Confidenceis below normal and weakening

  • Presidential CycleFavors 2011 and 2012DJIA Gains during Presidential CycleThis Cycle likely to be much below normal2011Only unprofitable year in over 60 years

    since1886since1950% up YearsAnnual Gain% up YearsAnnual GainPre-Election79%11.1%100%18.7%Election698.49110.1Post-Election525.0452.0MidTerm554.0554.6

  • Rhetoric Causes Trading Ranges2013 Bull Rally Hinges on Severity of Austerity

  • SPY violated the 50/50/0 Markers in April,but may find support at past highs

    Would you be long now?RSI less than 50Price is below MA50MACD sloping down and is under zeroDMIs are net-negative

  • 2012 Intermediate-Term Strategic ConclusionsWalk softly and carry a big stickActive institutional bottom-fishing and Operation Twist in November 2011 produced strong relief rally to end-March, 2012, as cash hoards were put to workLiquidity from Fed is over, Europe is in sovereign debt crisis, emerging markets slowing down: all likely to cause US stocks to sag into seasonal low by July 4th, 12U.S manufacturing sector becoming healthier from creative destruction and better technologies. But investing methods require greater selectivity in strategies and vehicles during such uncertain timesPolitical uncertainties and posturing delays problem-solving into next administration. Stocks bobble (crab-like) through 2012 into a political relief rally in Fall 2012Next administration forced to drastically cut spending, paring Government from 20% of GDP closer to historical 15%, increasing job-losses. Big Slice will be received better than frequent small slivers. European socialism/populism will worsen problems

    Thus 2013 likely to be a blood bath year for the US economy and the stock market. Using Contras and Defensives could be critical to getting any positive returns.

  • Depends on Who You Are?Passive Investor is defined by absence of disciplined rules to sell-off losersSnooze and lose has destroyed many nest eggsActive investors vary in degree of activityTiming to avoid big losses = dynamic asset allocation = MA12 Periodic rebalance ETFs = tactical asset allocation = IVY

    Monthly weed and refresh of stocks = position tradingDaily or weekly trading = swing tradingModestly active investors need better tools to trigger sound entry and exits that stay out of harms wayStrategy PreferencesFor Intermediate Term Investors

  • Limiting Losses Keeps More of Your GainsSince 1885, the DJIA spent32% of time in bear markets, going down44% of time getting back to break-even24% of time in net bull territoryData from Ned Davis Research

    Disciplined timing takes you out of harms way,when the bear market begins or in progress.Keep more of your gainsRecover losses more quicklyMake more money, more of the timeIVY spreadsheet discs are still available at $30

  • Three Simple Strategiesfor Moderately Active Investors to stay on the RIGHT side of the marketExit stocks whenever Index drops below its 12 month moving averageDiversify risk by holding 5 non-correlated ETFs only when each above its 10 month MAFind single best-class to boost return, with moderate drawdown, by holding the top performing ETF of the 5, refresh monthly

  • During past 60 years,Timing with 12 Month Moving Average Earned 35% More than Buy&Hold

  • For Dynamic Asset Allocation during Cyclical Periods, 12 Month Moving Average Pinpoints Reversals and Minimizes Draw-downsDuring 10 difficult years, would have averaged 6.6% annual gain with 11.5% max draw-downvs 1.2% gain and 52.6% mdd with Buy & HoldExplained more fully in Dynamic Allocation book

  • Spreadsheet, posted monthly,Keeps you Out of Trouble

  • For tactical investorsTwo Easy Monthly Refresh StrategiesIvy Portfolio5 asset class ETFs provide diversificationSimple timing avoids big draw-downsFew minutes each month is easy to take

    Rotation VariationCalculate weighted average return of each of the 5 ETFsInvest only in the top 1 or 2 ETFs

  • 5 asset class ETFsprovide diversification

    VTI = Vanguard Total US Market, VEU = Vanguard All World ex US, IEF = Intermediate Treasury Bonds,VNQ = Vanguard Real Estate Trust Index, DBC = DeutscheBank Commodities Index

  • Simple 10 Month Moving Average avoids big draw-downs

  • Diversification into 5 Asset Classes Avoids Big Draw-downsCAGR 2.75% 9.5%pa47502900But TimingHelps KeepThe GainsHold the5 ETFS

  • IVY Basic Produces Good Results with Little EffortRefresh monthly (can rebalance annually to 20% in each ETF). Since 1973, beat S&P 500 and only one losing year (half-of-one percent)11.3% for IVY vs 9.8% for buy-and-holdMax drawdown pared from 36% to 9.5%

  • IVY Spreadsheets, posted monthly,Tells You Which ETFs to HoldIVY BASIC, as shown, keeps you out of trouble and beats buy-and-hold returnsIVY TOP, best single ETF, produced 17.3% compound annual return over past fiv