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BCN Advantage - August 2016September 6, 2016
Jeff Bratzler, CFP
The markets experienced deep corrections in August 2015, January 2016 and again (very briefly) after the June 2016 Brexit vote. Yet we feel these corrections are not sufficient to move more aggressively into stocks.Corporate earnings continue to decline and global growth remains anemic - despite non-stop central bank interventions, not only here in the U.S. but also in China and Europe. EARNINGS: 2015 S&P 500 earnings were $86.47 compared to $86.95 for 2011, leaving actual reported earnings flat for four years. 2016 Q2 was the 6th consecutive quarter of year-over-year earnings declines. The last two such streaks were ominously the eight quarters from2007 Q4 to 2009 Q3 and the six quarters from 2001 Q1 to 2002 Q2, both accompanied by major bear markets. Six months ago, earnings forecasts for2016 Q3 were an optimistic +17%. Today, the consensus is -0.14% and falling.GDP: U.S. economic growth fell well short of expectations for the second quarter of this year. A paltry rate of 1.1% was reported (well below the 2.6% expected), and now the rate of growth for the first half of 2016 is just 1.0%. Over the past four quarters the non-consumer portion of the economy (most notably private-sector business), has grown at a rate of negative -0.2 percent. Only once since 1958 (in 2012) has the non-consumer part of the economy contracted without that period later being recognized as an official recession. FED POLICY: Minutes from their July meeting showed a split over when to raise rates. Fed policy - far more than fundamentals such as corporate earnings and economic growth - is driving the stock market. If January 2016 is any indication, the markets will react VERY NEGATIVELY when / if the Fed finally begins to raise interest rates. But the Fed is exactly the reason smart investors must hedge: The Fed has gone from projecting 4 hikes in 2016 (December) to 2 (January) to NONE so far in 2016 to none until LATE 2017 (after the Brexit vote) to possibly 2 again beginning next month! STRATEGY: It is not unusual for BCN to maintain a disciplined strategy over long periods of time. We spent all but 5 months from 2009 to 2013 FULLY invested in stocks. At one point we didn't change our fully invested allocation for 30 consecutive months (similar to the current period). Not changing our strategy doesn't mean we're not working hard for you. Patience is essential. It allows us to minimize losses. It gives us the financial ammunition (cash) to invest at much lower stock prices once the markets finally bottom. It allows us to be 100% fully invested once the risk / reward ratio turns in our favor. Our defensive strategy is not significantly underperforming the markets. Since late December 2014 (20 months), the S&P 500 has climbed less than 5%. As a point of reference, CalPERS earned 2.4% for FY 2015 and 0.6% for FY 2016. We will not remain defensive forever! We want to see another Fed rate hike and evaluate the resulting market reaction. We want to see a rally based on real economic growth and improved earnings - rather than more lip service and further dovish policy accommodation from the Fed. And we want that rally to come with higher trading volume - proof that true buying conviction has finally replaced short-term speculation.
testSeptember 26, 2016
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ISM Manufacturing and the Fed TrapSeptember 23, 2016
Leo NelissenSource Address    Seeking Alpha
If the Fed hikes, we would get a scenario similar to last year's. The Fed started hiking during a strong growth decline. This resulted in a very volatile market and bigger stock drops. One very important thing to note is that a slowing economy (ISM, etc.) does not mean that stocks and sentiment indicators ...
Six Ways NIRP is NegativeAugust 29, 2016
John Mauldin
Is Keynes saying 2% is some kind of interest rate floor? Not necessarily, but he says there is a floor, and it’s obviously somewhere above zero. Cutting rates gets less effective as you get closer to zero. At some point it becomes counterproductive. The Bagehot that Keynes mentions is Walter Bagehot, ...
2nd Quarter GDP Sluggish at 1.2%July 29, 2016
Jeffry Bartash
The U.S. economy expanded at a slightly faster 1.2% pace in the second quarter, but a big rebound in consumer spending was overshadowed by the largest drop in business investment since the end of the Great Recession. The pace of growth in the spring was well below forecast. The surprisingly weak GDP ...