Weekly Market Commentary

This past week has been volatile. Friday's jobs number ended up being perfect, not to good, not too bad, causing a big market rally. It has to be noted that the two day rally also came when the market was oversold and was a bounce off of the S&P 500's 50 day moving average.

Yesterday the market sold off, the excuse this time were some of the issues overseas (Turkey, Japan, ECB stuff, etc). The market also probably got a little ahead of itself on Friday but what is going on in emerging markets is troubling and bears watching.

Today, the futures are pointing to a 100+ point up move for the Dow Jones on the open.

Is the Bull Market in Bonds Finally Over?

We are starting to see the signs:

1. According to Morningstar mutual funds that invest in long term treasury bonds lost on average 6.8% in May, wiping out years of interest payments.

2. Other sectors like mortgage backed bonds, high yield, etc. got hit even worse in May.

3. According to EPFR Global, investors took $12.53bn out of global bond funds in the past week.

4. And, we sold all of our bond positions except for floating rate bonds.

Interesting and Not Completely Useless Information

Credit Suisse recently upped their target for the S&P 500 to 1730 for 2013 and 1900 by the end of 2014 but they actually included some interesting analysis beyond the usual gobbly gook:

1. They take 4 1/2 pages to basically say that there is still a bunch of money on the sidelines that is highly likely to move into stocks.

2. and this:

" So far, the S&P 500 has fallen by 2.5% from its peak. The market underwent its last correction of at least 10% in October 2011. However, over the past 30 years there have been four occasions on which equity markets have continued to rise for significantly longer without being interrupted by a 10% correction (nearly 7 years in the 1990s, nearly 4 ½ years in the 2000s and 2 ½ years in the 1990s).

So every decade since 1980 has seen a period of 2 ½ to 4 ½ years without a correction of more than 10% compared to the current period of 20 months.In our experience one wants to consider buying an asset class when commentators first

start describing it as a bubble. For instance, Greenspan warned of ‘irrational exuberance’ on Dec 4th 1996 (when the S&P 500 was 740) and the market then doubled over the following four years"

Tell Me Something I Didn't Already Know

Ex JP Morgan Broker: Firm Pushed House Funds

Wow, brokerage firms are still pushing their house funds, what a shock.

Recent Moves

We sold all of our counter trend positions in the S&P 500, Small Cap Stocks, and Dividend Stocks after Friday's rally. Yesterday's selloff caused us to buy back the S&P 500 positions. This brings the cash in our Trend Aggregation strategies to about 30% across the board. Our Momentum Strategies are still fully invested.

I Don't Care What Other People Made, I Just Care What I Will Make

Over the past few weeks we have won a bunch of awards for our past performance. As I talk to financial advisors across the country I am always asked about it and I tell them all the same thing----Past performance, ours, or anyone else's, is pretty much meaningless.

All past performance tells you is that other people either made money or didn't, it doesn't tell you whether you will make money in the future. Think about it, did the past performance of internet funds in 1999 tell you anything helpful about 2000-2002? Did the past performance of any stock fund give you any hint to how it would do in 2008? No. When evaluating any investment you need to ask the following:

1. Is the past performance sustainable? Meaning, does the manager have a well thought out approach that can be applied consistently? John Paulson is a great example, he made the greatest investment call ever and to date hasn't come close to living up to that, however investors threw tons of money at him based on one great call. Was that really sustainable? Could he make calls like that every year? Every couple of years? No way. Long Term Capital Management is another great example. They had a couple of years of amazing performance but was it sustainable? Their performance was based on being able to find arbitrage opportunities others couldn't. The one thing I know about arbitrage is that eventually people catch up and those opportunities disappear.

2. Is the approach dynamic? Meaning, can it adapt to changing markets. The manager may have a well thought out approach than can be applied year after year but what happens when markets change. Bill Miller from Legg Mason is a great example here, his approach----buy solid stocks when they get beaten down because they never go bankrupt---worked great for 17 years, until 2007 when these companies started going bankrupt.

3. There are five main outcomes that can happen in the market---it can go up a lot, it can go up a little, it can be flat, it can go down a little, and it can go down a lot. You don't need to look at the past performance of a strategy to get a good idea of how it will do in each type of market. If you have a large cap growth money manager they will do real well when the market goes up a lot, ok when the market goes up a little, be either flat, slightly up, or slightly down when the market is flat, lose a little when the market goes down a little, and lose a lot when the market goes down a lot. You also know a good tactical manager may give up some on the upside but won't get crushed in when the market goes down a lot.

I recently did a post on my blog where I talk more about this, you can read it here:

The Perils of Past Performance

Top Holdings

1. S&P 500

2. Cash

3. Dividend Stocks

4. US Small Cap Stocks

© Tuttle Tactical Management


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