Founder & Chairman
“It’s different this time”. Is it really? One of the hardest things in life to do, is to figure out if it really is different this time. It almost never is. Almost. With Greece, it’s even more difficult because we have to answer that question so often! I think the more appropriate question is…does it really matter? Thankfully, in the long-run, I don’t think it does. I don’t want to bore you with the inane details of a Detroit style Greek bankruptcy. What you really need to know, is that after an initial knee-jerk reaction, the most likely scenario is that the story comes and goes as quickly as a mid-summer thunderstorm. The world has had more than 5 years to prepare for such an event, and in our opinion has made the necessary adjustments to handle anything that Greece does. Which leads me to an interesting thought. I’ve noticed a dramatic increase in the nauseating fear-based marketing tactics that persistently warn of the next life-altering disaster that we must prepare for. Since the financial crisis, I think we’ve all become a little more fragile in our view of the financial world, and it does seem a little easier to rile people up. We’ve noticed it as well, in our conversations with our clients, the concerns people have over what they’ve heard, seen or read. I think this is a good opportunity to reflect on what makes America great, how being hearty and persistent has served us well and that we shouldn’t allow ourselves to be so easily shaken when it comes to worries over the future. Remember, how often is it really “different this time”?
As for why you hired us, let’s talk about investing. In spite of the concerns over rising interest rates, the overall equity markets have held up quite nicely. I don’t think anyone is concerned about an overheating economy right now. The generally conflicted economic reports have probably done just enough to keep the Federal Reserve Board from jumping in and raising rates this month. Here again, we think this is much ado about nothing, the Fed will eventually raise rates, but they won’t raise them by very much, and will likely take a deliberate and slow path to getting rates anywhere near historically normal levels. It is our view that equity markets will benefit from persistently low interest rates, although it is reasonable to expect some short-term volatility surrounding the initial announcement of either a rate-hike or Greek default should either happen in the near-term. Again, we think both are more likely not to occur this month, but not out of the realm of possibility. That should pave the way for the bull market to continue. It may not make sense to any of us right now, but markets have a tendency to mover farther in both directions than anyone thinks they will.
Specifically, certain areas of the market continue to do well. We have maintained our allocation to both healthcare and biotech, where our models hold either or both. We fielded a few questions about our move to add oil into our models initially, as much of the news surrounding it was negative, and there were numerous reports about the near-term over supply, concerns about Iran’s coming back online and adding millions of barrels to production, slowing demand etc. But when we looked at the fundamentals, sifted through the hype, we concluded that while oil might go lower we didn’t think that it would go much lower, and the more likely scenario is that it had a fair amount of upside as we thought the general tone was too negative and bearish. So far, we made a good call, and moving forward it looks like we may have seen the bottom. Time will tell. We did make an adjustment in some of our models to add Europe into the mix. Here again, we think the news is overly negative, and whether Greece defaults or not, the falling Euro combined with their version of “quantitative easing”, it paves the way for potentially rising prices. The algorithm has indicated that the timing was right. At this time, we are not making any changes to the equity portion of our models, we are comfortable with the makeup of the models.
As for bonds, recently, prices have come down, and yields have climbed. It’s hard to say whether this trend continues, or whether the damage has been done and things will settle down. We are watching this situation closely and will make adjustments if necessary. For now, we hold tight.
Managing money in this new-era isn’t easy. Since the financial crisis of 2008-09, the combination of an increased use of computer tools in the trading world, along with an avalanche of internet-based marketing/fear-mongering has generated more questions than answers. We’ve consistently leaned on our unemotional, mechanically based strategies to weed out the noise and avoid making decisions based upon fear or greed. We will continue to follow this discipline. Furthermore, there will inevitably be another big drop. We feel quite confident that our algorithm will help us manage that situation. It has become increasingly evident to us that the markets are being greatly influenced by global central bank actions, and that when the shift occurs, and the central bankers begin to back away, it will be very important to have the tools necessary to identify the underlying technical signals that can serve as an early-warning system. In the past, the algorithm that we use has been very accurate in picking up those signals and providing investors with a sell trigger. We have no reason to believe anything has changed on that front, and are confident that the tools we are using will be very helpful moving forward.
As always we thank you for your continued trust and confidence.
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Securities offered through First Allied Securities, Inc., A Registered Broker/Dealer, Member FINRA/SIPC. Advisory services offered through First Allied Advisory Services, Inc. A Registered Investment Adviser.
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