Market Opinion

15%+15%+15%-15% = 6%

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One of the most eye-opening aspects of investing is the impact of market declines on your total return.  If you make 15% in year 1, another 15% in year 2, another 15% in year 3, and then you lose 15% in year 4, you earn….6% annual return.  That one year of 15% loss cuts your four year annualized return to just 6%. read more

George Dagnino Market Opinion January 27

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In a post in SeekingAlpha on January 27th of this year (https://seekingalpha.com/article/4401277-market-and-earning-cycles-point-to-pause-in-2022 George Dagino wrote:

 

“The last bottom of the business cycle took place in March 2020. Growth should therefore show a peak in 2022, assuming the upward leg of the cycle is two years. This should be also the time growth in earnings will begin to slow down. read more

AAII Guidance on Placing Stock Orders

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The following is guidance from the American Association of Individual Investors about how buy and sell orders should be placed:

  • Market orders are not used.  Instead, if the quoted bid-ask spread is less than 2% (ask price minus bid price, divided by ask price), place a limit order at the ask price for a buy and at the bid price for a sell.  If the bid-ask spread is more than 2%, try to place a limit order between the bid and ask prices to keep transaction costs low.  If necessary, build a position gradually.  With zero commissions, it is often better to place partial orders than to try to establish a large position all at once.  Be patient.
  • The average daily dollar volume should be at least 10x the amount needed for your position.  This will ensure liquidity to get in and out of the position, even if you need to grow the position gradually and sell gradually.  This will result in a varying number of qualifying stocks for each investor.
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    Fixed Income ETF Selection

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    Bucket 2 in the ETF Retirement Strategy is Fixed Income.  For this bucket, we attempted to pick a “best in class” ETF for each of the five (5) categories:

     

    Morningstar /Schwab Fund CategoryETF
    Long Government BondsEDV – Vanguard Extended Duration Treasury Index Fund ETF Shares
    Emerging Market BondsEMB – Shares JPMorgan USD Emerging Markets Bond ETF
    Municipal BondsMUB – iShares National Muni Bond ETF
    Long Term BondsVCLT – Vanguard Long Term Corporate Bond ETF
    World Bond – US HedgedBNDX – Vanguard Total International Bond Index Fund ETF Shares

    As with the Equity ETF’s, our desire is for the asset correlation to be less then .70.  read more

    version 45 economic notes

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    Version 45 trades version 2

    I revised the economic indicators for accuracy. The RAR increased to 9.82% with 82% exposure. MDD is -16.23%, relatively unchanged. Two open Bond positions with BNDX and MUB.

    Economic Interpretation is 6-3 in favor of indicating that we are in an expansion period, as follows:

    Version45
    Phase 1: Expansion leaving Trough
    Phase 2: Expansion approaching Peak
    Phase 3: Contraction leaving Peak
    Phase 4: Contraction approaching Trough

    DGS3MO 90-day Treasury Indicator
    DGS3MOprice=0.1
    Phase Prediction=1

    DBC COMMODITY INDICATOR
    DBC price=15.3
    Phase Prediction=2

    SPY BROAD MARKET INDICATOR
    SPY price=375.7
    Phase Prediction=2

    UNRATE BROAD MARKET INDICATOR
    SPY price=6.7
    Phase Prediction=2

    HOUST HOUSING STARTS CONFIRMATION
    HOUST price=1547
    Phase Prediction=3

    VIXCLS CBOE Volatility Indicator
    Phase Prediction=3

    CP CORPORATE PROFITS CONFIRMATION
    CP price=2118.86
    Phase Prediction=3

    TWEXM US DOLLAR INDICATOR
    TWEXM price=91.5077
    Phase Prediction=2

    XLU UTILITIES INDICATED PHASE
    XLU price=62.99
    Phase Prediction=1

    Phase Predictor Indicator
    Phase 1 Total = 2
    Phase 2 Total = 4
    Phase 3 Total = 3
    Phase 4 Total = 0

    Expansion Ind = 1 Contraction Ind = 0 read more

    economic summary 1/17/2021

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    Economic Summary 1/17/2021

    In the lower part of the chart below you can see that the difference between Phase 1&2 (expansion) and Phase 3&4 (Contraction) remains high at 4. You can also get to that math by adding the Phase 1 and 2 totals from the count below and subtracting Phase 3 & 4. Historically that bias of 4 is high. It presumes that the risk of investing in assets that are correlated to the economy is low at this point.

    The model is invested in two Bond funds (MUB, BNDX) but also in commodities (PDBC), and as long as the correlation between bonds and the overall market remains positive I suspect that the algorithm will not change its opinion.

    Phase Predictor Indicator
    Phase 1 Total = 2
    Phase 2 Total = 4
    Phase 3 Total = 3
    Phase 4 Total = 0 read more

    bucket strategy

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    The emerging approach uses a “Bucket Strategy”. Basically, Bucket #1 is Cash, Bucket #2 is Fixed Income, Bucket #3 is Income producing Equities, and Bucket #4 are capital gains focused Equities. On an annual basis, the income from Buckets #2 and #3 refresh Bucket #1, and we use Bucket #4 to capitalize on long term market gains.

    This approach has been described in an article by Morningstar. We are modifying the approach slightly to include an additional bucket.

    https://www.morningstar.com/articles/840177/the-bucket-approach-to-retirement-allocation read more