Just about the time we were all being lulled to sleep by the low volatility in global markets all H--- broke loose in the past several trading days.

The five year drama in Greece persists. The never ending watch for China to implode continues apace. Some pundits think these two dramas are about to reach their final act, but we are not so sure.

Clearly the Greeks are closer to the end of their tragedy than they are to the beginning. But we still don't see consensus on what "the end" is. Our bet is that they "Grexit" the Eurozone, but we wouldn't put overwhelming odds on it. Frankly, we would welcome it because it would put an end to this five year long drama that has influenced financial markets for too long.

The Chinese government continues to find more options to keep their "economic miracle" going than the U.S. Fed has rabbits to pull out of their hat. Give the Chinese government credit for being faster on their feet than boxers, Sugar Ray Leonard or Muhammad Ali.

We have been watching pundits call for an economic implosion for at least 5 to 6 years and it hasn't happened yet. We will meet with our key "China maven" on July 12th to get an update. We like the fact that he is Chinese and among the wealthiest in the country. We have come to respect his insights.

If the markets didn't have enough to worry about, Puerto Rico is clearly insolvent and about to default on much of their debt.

If that wasn't enough, closing the NYSE for unexplained reasons today hasn't helped confidence in markets.

Here is a quick summary of our "take" on various markets:

1. In the very short term U.S. stocks are very oversold and likely due for a bounce.

2. A bounce may be a good opportunity to take profits on winners and sell losers. It may also be an opportunity to rotate portfolios into more defensive positions. Longer term charts of all major U.S. stock indexes are starting to roll over in what looks like major topping patterns. We are starting to see some of the same technical sell signals that we saw at the market tops in 2000 and 2007. It is early in the development of these patterns but they are getting clearer on the monthly and weekly charts.

3. A majority of "pundits" seem to expect the U.S. Fed to start raising interest rates in September or October 2015. We remain in the camp that rate increases are more likely in 2016. They will certainly come someday but we are not in the camp that they are imminent.

4. A majority of "pundits" expect the 10 year U.S. Treasury yield to exceed 2.7% by the end of the year. That may happen, but there is currently no technical evidence that long term rates will rise this year.

5. We wrote on April 22nd that the STOXX Euro 600 stock index was on the verge of a major breakout to the upside. That has not happened. The index has retreated in May, June and July. We'd like to be brave enough to buy European stocks on weakness, but we aren't. We want to see much more resolution to the Greek crisis before acting.

6. We noted on April 22nd that commodity prices had collapsed this year. The CRB Commodity Index is approaching the low it made in 2009. This index has been treading sideways for the past couple of months. 

7. Agricultural commodities have also collapsed. The Powershares DB Multi Sector Commodity Trust Agriculture Fund (DBA) is also trading near the 2009 low.

8. Gold has often become the "safe haven" trade when other markets are "toppy" or collapsing. That has not happened so far. The trend in gold prices remains down and is bearish on daily, weekly, and monthly charts. The price is near four year lows.

9. Copper is entrenched in a multi-year bear market and is approaching a 4 1/2 year low in price.  

This industrial metal is often referred to as "Dr. Copper" which is "market lingo for the base metal that is reputed to have a Ph.D. in economics because of its ability to predict turning points in the global economy. Because of copper's widespread applications in most sectors of the economy".

10. China stock indexes are collapsing and scaring everyone. We are probably less concerned about this downturn in their markets than most. A significant correction was overdue. What goes up too fast usually corrects as quickly and sometimes violently. When it is over a great buying opportunity has been created.

11. Health care, biotech and technology shares related to cyber security remain pockets of strength in the U.S. market and should be bought on any weakness.

12. If there is one trade that seems to have low downside risk and much higher upside opportunity it looks like "Buy" the Dow Jones Utilities Average.

13. In January we wrote, "The U.S. dollar looks like it is in the early stages of a new long-term secular bull market. We pointed out that the U.S. dollar index started to decline in 2001 and had been in a "bear market" ever since. It was in the very early stages of breaking out of that down trend in January 2015. We suspected that it would retreat somewhat and then resume its upward trend. It has actually trended sideways since January. The technical base case is that once the consolidation is complete the U.S. Dollar index should continue its upward momentum.

14. While gold has often been the "safe haven" trade in the past it seems to us that the U.S. Dollar is playing that roll in markets right now. 

We are now a little more than half way through the year and it has been a tough year to make money. We remain patient and unperturbed by the situation. 

Periods of high volatility usually offer the opportunity for "price discovery". Assets that collapse quickly in price were often in weak hands in the first place. They get sold out of fear, or in some cases because they are the only thing that can be sold. The Chinese stock market is a great example right now. With trading restricted on more than half the market people sell what they can to create liquidity. Moves in price get exaggerated as everyone sells the same stocks. Buying opportunities appear.

We suspect that the second half of 2015 will also be full of challenges but we are confident that we are accumulating great assets for our tactical portfolios, ORCA and Mendocino. 

Phillip Lampe is in the midst of a complete review of all assets in Cape Lookout and we are really enjoying his analysis. We will be making a few adjustments to strengthen that portfolio. We will write specifically about it in our next newsletter. 

Capital is being preserved and coupons being clipped in the "all-bond" accounts (formerly Pt. Reyes group).

The prices of stocks in the Dividend Diamond model have struggled this year, but the dividend income keeps rising, slowly but surely. We have noticed that all higher yield equity portfolios are struggling so far in 2015. The mainstream base case is that long term bond yields may rise significantly and offer competition to higher yield stocks. That may happen, but we have made it clear that is not our base case. Rising dividend income still remains on of our favorite investment strategies. 

All the best, 

 

Paul Krsek
MANAGING MEMBER & CHIEF INVESTMENT OFFICER  
5T Wealth Management
(707) 603-2672 Office
(707) 486-7333 Cell

Paul@5TWealth.com  

Disclosure and Disclaimer - Updated last on July 23, 2012 by Paul Krsek:
ELLUMINATION is the proprietary newsletter written for clients, friends, and affiliates of 5T WEALTH MANAGEMENT .

Paul Krsek is 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 writes without editing and 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.

Krsek makes frequent reference to the model portfolios called Hatteras, Mendocino, Point Reyes, Diamond Head, 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 is 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 http://www.5twealth.com/prd_port_signup.cfm.

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 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 Krsek lists the simple annual returns of the six model accounts in 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 in their quarterly reports prepared using Centerpiece.

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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