Do you believe the first calendar quarter of 2016 is almost complete? Since the year started we have experienced significant volatility in almost all asset classes. As we approach the end of Q1 we have verification of one of our key assumptions about this year.

"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

We have prepared a little table so that you can see just how volatile markets have been. The table lists many major global stock market averages, 10-year U.S Treasury Yields, U.S. aggregate bond index, oil, broad commodities, copper, natural gas, the U.S. Dollar, gold and agricultural commodities.

The first thing that jumps out at us is every one of these assets is well below its post-2009 peak value. You can see that in the "% Change from Peak" column.

The second thing that is notable is that most assets have experienced a significant correction during 2016, with the exceptions of the Barclay's U.S. Aggregate Bond Index and Gold. Most of the corrections in 2016 have been double digit moves.

The third thing to note is that many of the asset classes have corrected, rebounded and are now up year-to-date. Given all the headlines about falling oil prices, would you have guessed that West Texas Intermediate Crude Oil is actually up year-to-date?

The Brazilian economy is an absolute basket case. But Brazilian stocks are up 26.65%.

Did you know that the price of gold is up over 17% in 2016? It is still 35.34% below its all time high, but it has started to make a nice recovery from the bottom.

U.S., European, Chinese and Japanese stocks are down on the year. The one exception is the Dow Jones Transportation Average. It is down 11.13% from its all time high. But it is up 8.07% in 2016.

When the U.S. Federal Reserve Bank raised short term interest rates in December it was generally assumed that the Dollar would appreciate against many other major currencies. If you had actually bought dollars expecting appreciation you would have lost money year to date against a broad basket of currencies.  The U.S. Dollar Index is down in 2016.

Our partner, Jeff Roush, compares market moves like this to Mr. Toad's Wild Ride.

Frankly we aren't sure why Mr. Toad is smiling in this picture! Unlike Mr. Toad, we are certain our clients are not enjoying the markets wild ride!

We doubt very much that the volatility is over. Our investment policy committee met yesterday to review markets and strategies. We assign approximately 60% probability that U.S. and global equity markets will chop around all year finishing 2016 relatively unchanged. There could easily be individual markets or sectors that break that trend either way. But this is our base case for the broad equity market.

The fact that all asset classes in the table above are well below their post-2009 peak price leads us to suspect that many markets are in a long broad topping formation that will eventually lead to lower prices over the next 12-24 months.

We consider a break down in equity prices, following the pattern of this topping process, to be the second most likely outcome for U.S. equity markets. We place the odds at 20-25%.

The chart below is a look at the S&P 500 that shows you the broad topping formation that we are seeing in U.S equities. If this chart pattern actually plays out in text book fashion the Index could end 2016 back at the 1735-1750 level.

However, if the S&P 500 keeps moving higher through April-May, it will break above the parabola that is the resistance area above current price. That would be a strong technical sign that the long term correction is over and prices could move to new highs. We assign a 15% probability to this outcome.

We have shown you a lot of charts in Ellumination over many years. This one is among the most important you have seen. If the S&P 500 keeps moving up and breaks above that blue parabola resistance line everything changes for U.S. stocks. That could mark the beginning of a major new move up and a continuation of the "secular bull market".

How can there possibly be three dramatically different outcomes? We are living in the "age of central banks". They have never been more influential in financial markets than they are now. They have single handily supported "risk asset prices" since the 2008-2009 financial crisis. The Bank of Japan, the People's Bank of China, and the European Central Bank have all indicated that they are willing to buy corporate bonds and stocks in order to support markets. They have become the buyers of last resort.

Along with the U.S. Federal Reserve Bank, they have also kept interest rates at near record lows for over eight years. Corporations around the globe have been able to issue incredibly cheap debt, in the form of bonds. In many cases this money is being used to buy back company stock. "Stock buy back" plans have been among the biggest buyers of stock for years now.

Between central banks and corporate buybacks there is plenty of buying power to support stock prices. The obvious question is "what happens when these forms of market support are finally taken away"?


If this was a chart of a stock would you buy it? The answer is that you should. This is a classic breakout to the upside after a multi-year consolidation. The only problem is that this is not a chart of a stock. This is "core U.S. inflation", and it is breaking out to the upside. The Fed has been targeting 2% inflation for years. We are finally approaching it.

Assuming this trend holds, it will give the Fed plenty of cover to raise interest rates in June or in the fall. We are monitoring this carefully. This could be the "game changer" the Fed has been nurturing all along.

If the Fed does raise rates for the second time, then U.S. monetary policy diverges further from that of other major central banks. They are all still easing.

"Divergent monetary policy relates to the reality that even as the US begins to tighten its money supply, the European Union (EU), United Kingdom (UK), Japan and China remain intent on looser monetary policy and more easing. Until December, US rates still hovered around 0% and the U.S. remained aligned with the rest of the developed world in a united front, flooding the globe with cash and nursing the global economy toward health. Now with the rate raise on December 15 - the first rate change since 2008 - U.S. policy is clearly diverging."
Ellumination, January 7, 2016

We are not expecting rates to rise dramatically, but the odds of additional increases appear to be rising.


Assuming that other major central banks stay their course (easing) and the U.S. Fed stays its course (tightening) the U.S. dollar should rise against a basket of other major currencies. This was the expectation last December and continues to be our "base case".


The merger between 5T Wealth Management, LLC and Quish & Co. is right on course. Govinda Quish moved to Napa in early January and has been working full time as Chief Investment Officer of both firms. He will continue to live and work in Napa after the merger.

Mariah Quish continues to run the Boulder office and will do so after the merger is complete. Meghan Krsek, Jeff Roush and I are all preparing to accompany Mariah and Govinda to Vail, Colorado next week. We will spend several days getting to know their primary family office clients.

The merger is set to be completed on July 1, 2016. The name of the combined firm will be 5TQ Capital, LLC. (5TQ)

The Investment Policy Committee of 5TQ is Govinda, Mariah, Jeff, Phillip Lampe and Paul.

We will be meeting with Marina and Sterling Stevens the first week of April to start the process of updating our website, creating a new logo, and "branding" 5TQ.


Over the course of April, May and June we plan to meet with every client family we work with. The meetings are for the purpose of reviewing 2015 investment results, meeting Govinda and Jeff (if you haven't already met him), updating financial plans, and recommending changes in investment portfolios based upon our changing views of markets for the next 12-24 months.

Paul will be sending everyone emails to schedule these meetings and Jessica Sartain will be following up by phone to set actual meeting times and dates.

We are really looking forward to seeing you.

All the best,

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

Disclosure and Disclaimer - Updated last on JANUARY 6, 2016 by Paul Krsek:
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.

ELLUMINATION makes frequent reference to the model portfolios called Mendocino, Cape Lookout and Dividend Diamonds as well as our Fund of Funds Portfolio. During 2005 Paul Krsek was appointed Chief Investment Officer of 5T WEALTH MANAGEMENT, and as such was responsible to make all trading and management decisions for all client accounts which are being managed according to a specific portfolio model. A description of each of our models can be found on our website at

During 2016 Govinda Quish will take over as Chief Investment Officer. Krsek & Quish are currenlty 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 E-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.

From time to time the authors of Ellumination list the simple annual returns of the model accounts he tracks for this newsletter. These accounts are "models" and do not represent the actual results accruing to individual accounts. Simple annual return does not represent "time weighted return" as reported individually to clients. 5T Wealth Management, LLC no longer provides composite performance reporting for "model" groups. Individual clients should request performance reporting on their specific accounts. 5T uses EMoney Advisor to prepare those reports.

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.

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