June 3, 2016

Recession Watch June 2016

Ripped From the Headlines: “Will a Fed Rate Raise Put the U.S. In Recession?” Once again, media pundits are all atwitter about the idea the Fed will raise rates either this month or next, putting the U.S. into Recession.

As before, this is less about the actual impact to the economy and more about attracting eyeballs to either sell advertising or convince investors they have to do something and do it NOW, which generally rewards Wall Street.

While the risks have risen since the last Recession Probability Indicator update, they are still within the “Stable Investing Climate” range. Historically, investors have been best served by making few, if any, changes to their portfolios when the investing climate registers a “stable” reading on the RPI.

The Recession Probability Indicator (“RPI”) scored a 17 at the most recent reading, meaning the economic environment for investment is stable and below the “reduce risk” warning level of 20. That is subject to change but as with all things that have to do with investing, it’s better to take direction from facts and not fears.

Most of the time the RPI moves between 3 and 17.

The market can move around a lot even with a stable reading. Despite that, history vastly favors those who stay invested as long as there is no recession imminent.

If you’d like to review a more in depth examination of why it’s important to stay invested absent recession signals, click to visit the Recession Probability Indicator page and scroll down to see what happens if you stay invested except for recessions. CLICK HERE

If you’d like to understand why it’s important to try to reduce risk ahead of recessions CLICK HERE.

A quick note on my expectation for what the Fed will or will not do regarding rates and when. Regular readers know that, so far, I’ve been reasonably accurate in gauging Fed decisions. Famous last words, right? I did say “so far.”

My outlook at the moment is that the Fed will hold off in June but is likely to raise in July if things are as they are right now.

My opinion is that if the Fed raises in June, it means they have assurances that the British will not exit from the European Union. Conversely, if they do not raise in June that suggests they are holding fire because they don’t know what the Brits are going to do. If Britain does exit the EU I do not believe the Fed will raise until the impact of such a move becomes clear. That may mean September, that may mean later. If oil falls again in the interim, that may also put off rate hikes as the inflation numbers will mitigate slightly.

Regardless, the US economy is capable of withstanding a rate raise. However, such a raise combined with a British exit from the EU is likely to stoke fear in investors and result in yet another double digit sell off. Barring recession, such a sell off represents opportunities rather than obstacles.

As always, a link to the American Institute for Economic Research’s Monthly Business Conditions for those interested. Their view is similar to mine– risks are rising, but still no clear warning of imminent recession. CLICK HERE

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To Smarter Investing,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios, LLC.

May 3, 2016

Q1 2016 Quarterly Update and Market Outlook

>Q1 2016 Year-to-Date and Market Outlook Update

The video below reviews performance for all 6 Process Portfolios results year-to-date through April 15, 2016 and also includes an updated Market Outlook near the end.

2016 began with the worst January in at least a generation and a return to higher levels of volatility thanks to central bank statements and decisions that seem to be increasingly opaque and unpredictable to some market watchers. I’ve been fortunate in that the Fed hasn’t done anything far distant from my expectations, at least so far. We’ve also seen the financial media predictably stoking fear and the usual parade of media guests short on data but long on opinion.

Regardless, careful students of the markets have seen a fair number of signs that suggest we may see smoother waters later in the year, as long as the economy does not move onto a recessionary footing.

Overall, reasonable performance with 4 of 6 portfolios beating the benchmarks, and 3 of 6 outpacing the broad market. Most portfolios have managed to do so with less risk than investing in an index fund. It’s fair to say it’s been a very good quarter for the 3 portfolios that clocked a 4%+ return, 2 with substantially less risk than buying an S&P 500 index fund. That’s a nice result for such a tumultuous period.

The video below features the executive brief and results updates in the first 4 slides. Feel free to use the video player’s tools to skip ahead to what you are interested in. Thereafter there is a little more “color” on each portfolio followed by an updated Market Outlook. Rounding out the periphery of the presentation are descriptions of each ACI Process Portfolio, including risk management.

This video concludes with the always exciting regulatory disclosures, which seem to get longer by the day. We can thank the admirable solidarity law school graduates in government demonstrate with their private sector compatriots, constantly striving to make sure their fellows on the other side of the fence have plenty of work.

As I know everyone loves to read the disclosures, I’ve had our theme music looped at the the end to give you an even better reading experience.

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Warm Regards,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios, LLC.

February 2, 2016

Stock Market Outlook Q1 2016

Impending Bear Market or Just a Sharp Correction?

In this update, I ask (and answer) the question of whether we are on heading into a damaging Bear Market or if it’s more likely what we are seeing is just a sharp correction.

The video is front loaded with the “executive summary” in the first 4 minutes or so, but I’ve included a deep dive into what I’m seeing in the markets to frame my current view.

I tackle concerns about oil & energy, our economy, the global economy, and the perceived risks in China that seem to crowd the headlines.

In slide 11, the red line somehow moved when I converted the presentation to video. It should be around 23.5 rather than the 27 or so displayed. FYI.

You might also want to pause at the end of slide 7 – the final bullet points went by a bit fast.

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Warms Regards,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC
Process Portfolios, LLC

January 6, 2016

Recession Watch

Is 2016 the Year of Recession? This question seems to be on everyone’s mind and even the media talking heads have jumped on it to grab readers & viewers.

Spoiler: As of today, there is no recession on the horizon. The Recession Probability Indicator (“RPI”) scored a 12 at the most recent reading, meaning the economic environment for investment is stable. That is subject to change, but as with all things that have to do with investing; it’s better to take direction from facts and not fears. My personal opinion is that the odds of recession are higher in 2016 than they were in 2015, but the fact remains: no recession yet on the horizon.

That doesn’t mean the market can’t go up and down (sometimes a lot), but that history vastly favors those who stay invested despite volatility, as long as there is no recession imminent. Don’t take my opinion, click the title at the right to see the facts– Why Recessions Kill Investment Portfolios.

Here’s some simple and quick proof-in-the-pudding: Pretend you had $200,000 to invest in January 2000. The first block gets invested the way financial salespeople tell you to invest – it’s going to stay invested no matter what because you “have to be in it for the long term.”

The second block of $100,000 is, to be simple, going to move to 100{1b789970f5b587cdad7e2a0d5c032cbf2e438ab9022fea5c2ba3cf7af142fa35} cash as soon as it looks like there may be a recession coming. Call that the “RPI Guided” for Recession Probability Indicator.

Where are these two investments at the end of December 2015?

As you can see below, it pays to make rational decisions about investments rather than getting caught up in short term volatility or whatever the media clones are spouting off about.

As I observed in one of last month’s articles, We May Have a Bump Coming in the Markets (click title to read), it wasn’t clear a Fed rate raise was going to be the positive short term catalyst many market observers & participants thought. It may be that much of what we are seeing as we start 2016 is the holiday-delayed reaction to the Fed raise, mixed in with a liberal dose of alarming headlines arising from a wide spectrum of topics, some of which have no real bearing on investing. Some (me) might say most of which have no real bearing on investing.

Remember, fear helps the media sell advertising and stock brokers earn commissions, but it sure as heck doesn’t help investment portfolios do what they are supposed to do, which is be there for you when you retire, with the assets you need to live the way you want to. Don’t let short term noise get in the way of a solid plan. Only impending recessions should do that, and if you have a real investment plan, you already know what you are going to do when the next recession comes.

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To Smarter Investing,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios, LLC.

November 25, 2015

Process Portfolios Performance Update October 2015

Market Beating Portfolios – Performance Update October 2015

The video below reviews performance for all 6 Process Portfolios for the month of October as well as year-to-date results. For reference, I’ve include a table of 2015 year-to-date performance for the major indices & asset classes above the video player. It hasn’t been an easy year, but Process Portfolios live portfolios and designed models have managed to achieve reasonable performance for less risk than owning an index fund, and in some cases have also provided considerably better results. Not too shabby.

Click to enlarge.

The video below is organized so that bottom-line oriented people will get what they are looking for in the first 3 or so minutes and those interested in a bit more detail can stick around for the discussion. Portfolio descriptions including risk management available at the end of the video.

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Warm Regards,

Dak Hartsock
Chief Investment Strategist
ACI Wealth Advisors, LLC.
Process Portfolios, LLC.

October 17, 2015

Will US Economy Sink or Support the Stock Market?

Will the Economy Sink or Support the Stock Market? Investment & Business Conditions Update

October 2015

There has been great concern recently among talking heads whether or not the Fed will raise rates and what the impact on the economy will be if they do. The fact is the US economy is trudging along and is likely to continue to do so whether or not the Fed raises rates incrementally over the next few quarters. The market’s concern, misplaced in my opinion, is that once the Fed starts hiking it won’t stop until rates are normalized. That isn’t going to happen. Any hikes will be small, and the path to normalcy will take several years. Our economy is okay, but it isn’t in a position to support a typical rate hike cycle and the Fed, despite fumbling the message repeatedly, knows it.

So, if we can discount the Fed (at least for now) what are we really seeing? The Recession Probability Indicator improved mildly from last month with a current reading of 12, indicating a stable investment climate and a mildly growing economy with no current risk of recession. That suggests that the economy, as it continues to grow, should ultimately support higher earnings which is a positive for the stock market.

The RPI runs on a 2 month delay due to the Fed’s data release schedule.

If you are new to the RPI, it’s tool to measure the strength of the American economy and the safety of the investing climate. It’s built on data from the Federal Reserve and has demonstrated itself to be historically effective.

CLICK HERE to learn more about the RPI and see an illustration of it’s potential impact on investing. Make sure you take time to scroll down to take a look at the updated tables. Prepare to be impressed.

For those interested, I’ve also included the most recent summary from the American Institute for Economic Research below.

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Warm Regards,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios, LLC.

Monthly Summary of October Business Conditions from the American Institute of Economic Research

…The Economy…

Unusual demographic shifts currently underway and slated to last for many more years may be affecting the overall economic growth rate as well as creating pockets of relative strength and weakness. One example is in housing, where multifamily construction has rebounded more robustly than single-family homebuilding following the housing boom and subsequent bust that helped usher in the Great Recession.

Our Leaders index improved slightly in the latest reading, while cyclical scores changed little. Taken together, the AIER data suggest that the risk of recession in the coming six to 12 months remains low.

…Inflation…

The Consumer Price Index slipped month-to-month for the first time since February 2015. This is consistent with last month’s report that inflationary pressure was easing. The latest AIER inflationary Pressures Scorecard points to further downward pressure on inflation for months to come. Only eight indicators out of 23 show rising inflationary pressure, compared with 12 last month. The easing resulted from a recent slowdown in consumer demand and fast growth in supply. A decline in energy prices was another important contributor.

…Policy…

The Fed kept interest rates unchanged at its September meeting, in line with market expectations. But the central bank’s projections continue to indicate that the first rate hike in more than nine years is likely to occur by the end of December. After holding rates near historic lows for so long, anticipation of the initial step toward normalization in monetary policy may actually stimulate borrowing in the short run as people try to get ahead of future increases.

Demographic change is slowing growth in the labor force and gains in educational attainment. The fastest way to reverse this—skill-based immigration—is unlikely to garner political support in Washington. Alternative but slower solutions include making it easier for American youth to continue their education beyond high school.

…Investing…

Yields on mortgage-backed securities are about in line with their historical relationship to U.S. Treasurys. An improving economy and healthier finances for borrowers would boost overall loan quality and help narrow yield spreads slightly. However, the prospect of Fed interest rate increases is likely to boost pressure on yields across the fixed-income spectrum.

Lumber futures prices have fallen more than other housing-market indicators would suggest.

A bubble in stock prices of U.S. homebuilders from 2000 through 2005 was worse than the better-known tech-stock bubble of the late 1990s. Following the bust in homebuilder shares and the Great Recession, homebuilder stocks since 2011 have slightly outperformed the broader market.

Global equity markets have struggled in recent months, reeling from a worldwide economic slowdown, the effects of potentially higher U.S. interest rates, a strong U.S. dollar, and ongoing military conflicts that have created arefugee crisis. For those with a high tolerance for risk, these times can create opportunity.

CLICK HERE for the full summary.

August 10, 2015

Buffett Buying Out ACI’s Largest Holding

Buffett Buying Out ACI’s Largest Holding

Precision Castparts announced this morning that it has agreed to be acquired by Warren Buffett’s Berkshire Hathaway for $235 a share, subject to shareholder approval. ACI views this as a validation of the research process for ACI’s Durable Opportunities Portfolio.

Precision Castparts is the largest holding in the Durable Opportunities Portfolio. ACI began buying Precision Castparts in September 2014 and three additional add-on buys were made prior to June 2015. Each ACI buy was below the Berkshire offer price.

Mr. Buffet’s planned acquisition validates the ACI research process for Durable Opportunities and ACI’s view of Precision Castparts as a strong company with superior management and predictable growth prospects that will last for decades, providing investors with desirable long term rates of return.

ACI’s Durable Opportunities Portfolio focuses on buying companies that are going to be around for decades, at or below fair value, which feature ever growing equity for shareholders and target expected returns in the low double digit range – reasonable risk for reasonable return.

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Warm Regards,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC
Process Portfolios

August 5, 2015

Portfolios Update July 2015

July 2015 performance update on 3 of our Portfolios: Core Equity, Full Cycle, and Market Income. Market Income in particular continues to lead with year-to-date results about 50% higher than the S&P 500.

If you’d prefer not to view the video in entirety, you can scroll ahead to whatever segment you are most interested in.

Core Equity Portfolio: 1:01
Full Cycle Portfolio: 4:36
Market Income Portfolio: 6:48
Summary & Current Forecast: 8:49

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Kind Regards,

Dak Hartsock
Chief Market Strategist
ACI Wealth Advisors, LLC.
Process Portfolios

April 1, 2015

Economy Showing Signs of Wear? Recession Probability Update April 2015

RPI Score Moves to 27 from 12
One of the major components of the RPI has recorded it’s 3rd negative month in a row. This has occurred three times in the last 15 years. Two of those occasions marked the beginning of market declines that ultimately became crashes.

The move above 20 creates a “Reduce Risk” signal for money Process Portfolios manages on behalf of clients.

Our perspective is that this component will flip positive next month and that the other components of the RPI will not confirm the warning, sending the RPI back below 20.

The RPI is a tool for measuring the strength of the American economy. It is derived from data provided by the Federal Reserve – things like CPI, GDP, productivity, employment, manufacturing activity, retail sales, etc.

Using a simple algorythm, the RPI scores the investment environment from 3 to 75. A score of 20 or above signals a rising likelihood of recession (usually bad for stocks). A move back below 20 after a recession signals a rising likelihood of favorable investment conditions. Most of the time it putters along between 3 and 17.

For a more detailed description of the RPI, take a look at the Recession Probability Indicator page.

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Retirement

Recession Watch June 2016

Q1 2016 Quarterly Update and Market Outlook

Stock Market Outlook Q1 2016

Impending Bear Market or Just a Sharp Correction?

Recession Watch

Process Portfolios Performance Update October 2015

Will US Economy Sink or Support the Stock Market?

Buffett Buying Out ACI’s Largest Holding

Portfolios Update July 2015

Economy Showing Signs of Wear? Recession Probability Update April 2015

For ACI, investment management begins with understanding and actively managing risk for our clients and partners. We do this through smarter investments built on low cost, highly liquid and diversified investments rather than expensive financial products. CLICK HERE to learn more.

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Success in any endeavor comes from hard work, vision, and planning. We can help you create a more confident future by working with you, your CPA, your tax and estate counsel to make sure that when the tomorrow becomes today, you are where you want to be.

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