"Our base case is that 2016 is likely to be marked by a higher level of volatility and overall lower average market returns than we have seen in recent years."
Ellumination, January 7, 2016

It is now five months later and our base case is playing out so far, just as expected. Stocks, in particular, have remained volatile and in the end have gone no where so far this year.

Rarely does one chart tell the story of a market as well as this one. It is called "Fed Balance Sheet Driving Asset Prices". The RED line shows the growth of the Federal Reserve Bank's balance sheet from January 2008 through Q1 of 2016. The BLUE line shows the progress of the S&P 500 over the same period of time. It is clear that stocks have risen during the periods when the Fed is pumping liquidity into markets through their "Quantitative Easing" programs (QE).

It is also clear that as each program ended the market trended sideways or retreated while waiting for more easing from the Fed.

QE-1, QE-2, Operation Twist, and QE-3 are now clearly in our rear view mirror, but they drove this index from a low of 666 in March of 2009 to a high of 2134 in May 2015. Stocks have not been able to advance further for over a year now.

5T has made it clear that we expect the market to have trouble moving higher from current levels. We also expect increased volatility for the foreseeable future. That is not to say that we are expecting a major collapse for stocks. We simply see an era of potentially very modest returns coupled with higher volatility.

5T believes that U.S. and global stock prices would be much lower had there not been so much QE on a global scale. All major central banks have used QE to inflate asset prices.

We present a second chart that helps to confirm why stock prices are not likely to advance much farther in the absence of massive QE. This chart and commentary are from BreakPointtrades.com.

The time frame on the chart is different from the one above. It shows market progress since October 1, 2011. The S&P 500 has risen 83.44% since then, while earnings of the companies that make up this index have actually FALLEN.

This chart is simply showing us that the entire move up in the S&P 500, during this period, is from "multiple expansion". That means the index has risen only because buyers have been willing to pay higher and higher prices for the same amount of earnings. This is never a sustainable trend. Either earnings will have to rise or stock prices will need to come down to bring the "price to earnings" ratio of the market back in line with historic norms.
The Shiller Price/Earnings ratio (SPE) is currently 26.2. That is 57.5% above the historic SPE mean of 16.7. Gurufocus.com estimates that the probable return for the S&P 500 will be -.2% over the next twelve months, based on historic trends when the SPE at this level.
At the present time only Energy stocks and Financial stocks are priced at significant discounts to the overall market. Both sectors remain depressed for specific reasons.

Energy stocks are weighed down by uncertainty over the future of oil prices. 5T does not see significant upside for the price of oil over the next twelve months. On the other hand, supply/demand dynamics for natural gas seem to be changing in favor of rising prices over the next 12-24 months.
Financial stocks continue to feel the pinch of low interest rates. It is difficult for banks and insurers alike to expand profits in an environment where both short term and long term rates are near all time lows.
The Industrial sector is priced at a small discount to the overall market. However, within the sector there are some bargains to be had.
5T's believes that if investors own stocks (are long) in today's market it is important to be picking stocks, rather than indexing. The time to index is when ALL stocks are cheap.
5T also believes that it is the perfect time to diversify your portfolio away from being "long only" common stocks.
Owning a "long/short" strategy that can profit from moves that are either up or down makes sense to us.
Owning alternative assets that are not at all correlated to the price movement of stocks makes sense to us.
Three of our newest investment strategies are designed to provide alternatives to a "long only" stock portfolio. 
If we haven't already talked to you about these strategies, we will soon. We are intending to meet with every client we have to provide an overview of them as well as a more detailed overview of all current conditions in financial markets. We will also be discussing suitability for the new strategies with each client family during our meeting. 
5T believes that investors can make solid returns over the next 12-24 months, but those returns are probably not going to be derived from conventional strategies.


Two weeks ago we adopted an amended operating agreement for 5T Wealth Management, LLC which will become effective July 1, 2016. At that time Govinda Quish will officially become the fifth partner in 5T and will officially assume the title Chief Investment Strategist.

We will also be changing the name of our company to 5TQ Capital, LLC on July 1st.

Govinda has been acting as Chief Investment Strategist since January 1. It will become official on July 1. He has been hard at work designing strategies that should benefit all of 5T clients.

Hien Scozzafava was admitted as a partner in 5T as of the signing of the amended agreement.

Jeff Roush, Meghan Krsek and Paul Krsek are extremely pleased to welcome both Govinda and Hien into the partnership.

5T and Quish & Co. have decided not to merge. Mariah Quish will continue to run Quish & Co. in Boulder, Colorado, with no connection to or affiliation with 5T. We wish Mariah the very best and lots of success with her company.

We all look forward to seeing Govinda meet all of our clients.

Those of you who know Hien, and would like to congratulate her on partnership can reach her at hien@5twealth.com.

We look forward to see you soon.

Paul Krsek, Jeff Roush and Govinda Quish


5T Wealth Management, LLC
(707) 603-2672 Office
(707) 486-7333 Cell



ELLUMINATION is the proprietary newsletter written for clients, friends, and affiliates of 5T WEALTH MANAGEMENT.

SINCE 1998 Paul Krsek HAS BEEN the sole author of ELLUMINATION. While the views and representations found in the newsletter generally reflect the attitudes and opinions of the 5T WEALTH MANAGEMENT members and staff, Krsek wrote without editing was therefore is solely responsible for the content and opinions contained in ELLUMINATION.


ELLUMINATION does not represent the opinions of Fidelity, Fidelity Institutional Brokerage Group, NFS or anyone employed by Fidelity in any capacity. Neither Fidelity, Fidelity Institutional Brokerage Group, nor NFS, nor anyone employed by Fidelity in any capacity has participated in the creation of ELLUMINATION and they are not responsible for the contents or distribution of ELLUMINATION.

ELLUMINATION is written to provide general information to clients, friends, and affiliates. The contents of ELLUMINATION are not to be taken as individual investment advice. No investment decisions should be made based on the opinions or information offered in ELLUMINATION.

5T WEALTH MANAGEMENT does not represent that the information in ELLUMINATION is accurate or complete and it should not be relied upon as such. Opinions expressed herein are subject to change or modification without notice.

The investment portfolio models or management services mentioned in ELLUMINATION may or may not be available in some states, and they may not be suitable for all types of investors.

5T WEALTH MANAGEMENT manages accounts with various histories and investment objectives. Various accounts may be managed differently from time to time.

Paul Krsek is the acting CEO of 5T Wealth Management working with the investment committee in the establishment and selection of client portfolio strategies. Krsek may make reference to model portfolios and investment strategies including but not limited to Dividend Diamonds and Mendocino. Krsek is responsible for making all trading and management decisions for all client accounts being managed according to specific portfolio models and strategies. A description of the models and strategies can be obtained by contacting Paul Krsek at 5T Wealth Management’s Napa headquarters.

During 2016 Govinda Quish will take over as Chief Investment Officer. Krsek & Quish are currently collaborating, along with the other members of the Investment Policy Committee on strategy and portfolio construction.

Not all accounts managed by 5T WEALTH MANAGEMENT are "modeled" accounts. We strongly urge our clients to understand which model, if any, are being used to manage their accounts.

From time to time 5T WEALTH MANAGEMENT receives requests from clients to purchase securities that are not included in the model portfolio to which they are assigned. Effective May 24, 2006, 5T WEALTH MANAGEMENT has encouraged clients to hold such securities in a separate account for the client. Because 5T WEALTH MANAGEMENT is a "fee only" registered investment advisor" it charges its normal management fee for monitoring such securities in the separate accounts in which they are held.

5T WEALTH MANAGEMENT makes every effort to exclude securities that are 'requested by the client' from the modeled portfolio accounts.

The investment objectives of various accounts and models may be substantially different from one another. Therefore topics or investments mentioned in ELLUMINATION may or may not apply to specific managed accounts and/or models.

Trades or adjustments to accounts mentioned in ELLUMINATION may or may not happen in every account managed by portfolio managers at 5T WEALTH MANAGEMENT.

If you are not satisfied with the investment results in your account it is your responsibility to inform Krsek or Quish to discuss possible changes that can be made to the account to accommodate and satisfy your needs.

The assets held in managed accounts at 5T WEALTH MANAGEMENT may include stocks, bonds, cash, commodities, foreign exchange or mutual funds or exchange traded funds (ETF's), money market accounts or limited partnerships that represent the same. They are subject to market fluctuation and the potential for losses. The assets are not insured. The value and income produced by these investment products may fluctuate, so that an investor may get back less than they initially invested.

The portfolio managers at 5T WEALTH MANAGEMENT do not guarantee results.

Past performance should not be considered an indicator of potential future performance. If you do not consider yourself suitable, either emotionally or financially, to experience volatility and/or losses in financial markets, you should not invest.

Model accounts and strategy performance quoted in the ELLUMINATION Newsletter and elsewhere to clients do not represent actual results accruing to individual accounts.   Simple annual return does not represent “time weighted return” as reported individually to clients in their quarterly reports prepared using Orion and other performance report firms who are external service providers.  The reports provided via Orion and other providers are for informational purposes only and clients are urged to carefully review and compare it with the separately delivered custodian statement.   The information is based on pricing information provided by third party sources and is believed reliable, but its timeliness, accuracy and completeness are not guaranteed.

This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy any securities or other instruments mentioned in it.